OPEC+ meeting: What's best for Nigeria?

The oil market is anxiously anticipating a decision from the OPEC+ group regarding production guidance for member countries in 2021. For Nigeria, whose economy heavily relies on the oil sector that contracted by 13.89% in the third quarter of the year, the outcome of this decision holds immense significance. The Chairman of Shoreline Group, Kola Karim, and Tajudeen Ibrahim, Senior Vice President and Head of Research at Chapel Hill Denham, joined CNBC Africa to discuss the implications. Karim highlighted the critical importance of the OPEC meeting for Nigeria, emphasizing that the country's economy has been adversely affected by the contraction in its oil sector. He pointed out that the oil sector contributes over 85% of Nigeria's foreign exchange earnings, making it a pivotal sector for the country's economic well-being. However, Nigeria currently has spare capacity in oil production, with approximately four to five hundred thousand barrels per day that it needs to leverage. This has led to negotiations and disagreements among OPEC countries, with countries like the UAE and Kazakhstan also vying for a share of the market. Karim expressed optimism that Nigerian delegates would negotiate effectively to secure favorable outcomes for the country. Ibrahim echoed the sentiment, advocating for a shift in focus towards long-term prospects to reduce dependency on crude oil as a major revenue source. He emphasized the need for Nigeria to diversify its income sources and plan for the future beyond short-term gains. The conversation also touched on the impact of the COVID-19 pandemic on oil demand. While recent developments in vaccine approvals have raised hopes for economic recovery, Karim cautioned that the road to full demand restoration is long. He highlighted the return of surplus production to the market from countries like Libya and Venezuela, indicating potential challenges in balancing supply and demand. Ibrahim concurred, noting that price movements in the oil market were influenced by vaccine news and global progress against the pandemic. He forecasted oil prices to hover around $45 to $50 per barrel, subject to uncertainties surrounding the pandemic's containment. The ongoing OPEC+ discussions revealed divisions among member countries regarding production quotas. Countries with spare capacity lobbied for increased production levels, while oil-dependent nations sought to maintain the existing cuts. Karim emphasized the delicate balance needed to prevent market destabilization, suggesting a cautious approach to avoid erasing gains achieved so far. He predicted that the outcome of the meeting might lean towards maintaining current production levels for another quarter, with a reevaluation planned for March. This decision aimed to align with market conditions and vaccine developments to ensure a sustainable recovery. As the world awaits the OPEC+ verdict, Nigeria stands at a critical juncture, poised to navigate the turbulent waters of the oil market and steer its economy towards resilience and diversification.