Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke
- Oil price slump: OPEC gains upper hand as US rig count slumps
In response to the slump in crude oil prices in the international market, the federal government has announced a corresponding reduction in the pump price of petrol from N97 a litre to N87 a litre.
Making this known last night, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, said the price cut took effect from midnight on Sunday.
In a statement, the minister said: “As you may be aware, there has been a lot of volatility in the oil market in the past few months and due to this the importation prices of our petroleum products have been impacted.
“Therefore, with the approval and directive of Mr. President and by virtue of Section 6 clause 1 of the Nigerian Petroleum Act, it is my responsibility as Minister of Petroleum Resources to hereby announce a reduction in the pump price of Premium Motor Spirit (Petrol) from N97 per litre pump price down to N87 per litre pump price, effective from twelve (12) midnight Sunday, 18th of January 2015.”
The Department of Petroleum Resources (DPR) and the Petroleum Products Pricing Regulatory Agency (PPPRA) have been mandated to ensure compliance.
The federal government has been under pressure from the All Progressives Congress (APC) and the public to reduce the price of petrol, arguing that subsidy on the commodity was eliminated once oil prices fell below $70 a barrel.
THISDAY had also exclusively reported as far back as October that with the oil price slump, the federal government would have to either remove the subsidy on petrol or lower the official price of the commodity.
In a related issue, crude oil drillers in the United States (US) have taken a record number of oil rigs out of service in the past six weeks as member countries of the Organisation of Petroleum Exporting Countries (OPEC) keep their oil production at 30 million barrels per day (mbpd), thereby sending prices tumbling to below $50 a barrel.
The US oil rig count has fallen by 209 since December 5, 2014, the steepest six-week decline since Baker Hughes Inc. (BHI) began tracking the data in July 1987, reported Bloomberg yesterday.
Market reports said that the count was down 55 this week to 1,366 and horizontal rigs used in US shale formations that account for virtually all of the nation’s oil production growth fell by 48, the biggest single-week drop.
Bloomberg quoted analysts, including HSBC Holdings Plc, as stating that the decline showed that OPEC countries are winning the fight for market share and slowing the growth that has propelled US oil production to the highest in at least three decades.
OPEC’s decision at its 166th General Meeting in Vienna last November not to curb its production output amid increasing supplies from the US and other non-OPEC countries has driven global oil prices down 58 per cent since June.
“OPEC’s strategy is working, and it will be obvious in US production by mid-year when growth from shale players will come to a halt,” James Williams, president of energy consulting company WTRG Economics in London, Arkansas, was quoted to have said by telephone to Bloomberg, adding: “You can imagine the impact on any industry from a 50 per cent impact on sales.”
Nigeria, like most OPEC countries, has been impacted by the drop in the price of crude oil. However, OPEC member countries like the United Arab Emirates (UAE) and Saudi Arabia have maintained that it was up to shale oil producers and not OPEC to cut production.
While the West Texas Intermediate for February delivery rose $2.44 on Friday to settle at $48.69 a barrel on the New York Mercantile Exchange, up 33 cents for the week, the first gain since November, Brent, the international benchmark, rose $1.90 to end the day at $50.17 on the London-based ICE Futures Europe Exchange, a weekly gain of 6 cents for the front-month contract.
“Prices are being forced towards levels that would force outright shut-ins in high-cost areas, mainly in Canada and the US,” Societe Generale SA (GLE) analysts including Mark Keenan, its head of commodities research for Asia in Singapore, said in a research note.
However, the slump in oil rigs is yet to stop the unprecedented growth in US oil production, which added 60,000 barrels a day in the week ended January 9 to 9.19 million, the US Energy Information Administration data has shown.
Bloomberg also reported that projects are being cancelled and budgets cut around the globe. For instance, Royal Dutch Shell Plc was reported to have called off a $6.5 billion project in Qatar, while contract drillers Helmerich & Payne Inc. (HP) and Pioneer Energy Services Corp. (PES) lost US rig contracts.
Mexican oil service companies also cut more than 10,000 people and Suncor Energy Inc. (SU) fired workers in Canada.
HSBC analysts, including Gordon Gray, said in a research note that “we are seeing leading indicators of weak prices starting to drive the rebalancing that OPEC is seeking to achieve”.
Rigs drilling for natural gas in the US also dropped by 19 to 310 and inventories of the heating fuel in the lower 48 states totalled 2.853 trillion cubic feet last week, 11 per cent above year-earlier levels
Bloomberg however records that natural gas for February delivery on Friday dropped 3.1 cents to settle at $3.127 per million British thermal units on the NYMEX, down 29 per cent in the past year.