Oil market could be left short as economies rebound, says Nigeria state oil company CEO

China's eventual reopening and slow crude supply growth mean the global oil market will be in shortage, the head of Nigeria's state petroleum company, who also serves on his country's OPEC delegation, said Jan. 11.

OPEC and its allies, including Russia, opted to slash production quotas by 2 million b/d from November through the end of 2023 in anticipation of slowing demand and the prospect of recessions in key economies, despite the EU's plan to impose an embargo on imports of Russian crude from December and refined products from February.

"I do not see how this demand will collapse because countries are coming back, China is recovering from COVID-19 and a number of countries, particularly sub-Saharan African countries, are growing, economies are growing very, very fast against all odds," Mele Kyari, the group CEO of NNPC and Nigeria's national representative to OPEC, said on a webinar. "That means more consumption."

The OPEC+ alliance reaffirmed the decision at its December meeting and a nine-country monitoring committee, on which Nigeria sits, will convene Feb. 1 to review market conditions and, if needed, recommend any changes to production volumes.

Since the quotas were cut, Platts-assessed Dated Brent has fallen from above $100/b in early November to below $80/b in recent days.

Equatorial Guinea oil minister Gabriel Mbaga Obiang Lima, speaking on a separate webinar Jan. 10, said the OPEC+ coalition was closely monitoring the Chinese economy and the Russia-Ukraine war.

China has relaxed some of its pandemic restrictions ahead of the Lunar New Year holiday, though analysts are divided on whether rising infection rates in the country will offset any increase in oil demand for transportation.

China opening

"We are all looking at this new opening of China," Obiang said. "Traveling is going to be a key thing. If the Chinese New Year concludes and there is not major concern about infections, that's going to be a sign that things are going in a positive way."

As for Russia's invasion of Ukraine, Obiang said it was still unclear how long hostilities will continue.

The EU began an embargo on seaborne imports of Russian crude in December and is set to do the same with refined products in February. The G7 has also implemented a $60/b price cap on Russian crude cargoes, though key Russian grade Urals has traded well below that price in recent weeks.

Kyari said there was little evidence that the oil market was facing a shortage from the measures. While sanctions have impacted how much crude Russia has been able to export, Middle Eastern producers have not lost market share, he said. "What's really changed is the flow of trade."

Speaking on Nigeria's oil outlook, Kyari said the country plans to increase its production in 2023, but with two domestic refineries being refurbished, not all of the extra crude output will be exported.

Crude and condensate production was 1.519 million b/d at the end of December and the target is 1.8 million b/d by the end of 2023, but "we know it is practical to go to 2.2 million," Kyari said.

Some of the new production will be diverted to two domestic refineries being upgraded that are expected to begin operations later in 2023, he said.

Nigerian crude output alone rose to 1.33 million b/d in December, the highest since April, after the return of key grades Forcados and Brass River, according to the monthly Platts survey by S&P Global Commodity Insights.

Nigeria lost around 500,000 b/d of oil production to theft in 2022, according to government estimates. Nigeria's Minister of State for Petroleum Timipre Sylva has said the battle against oil thieves was gradually being won.

Nigeria's refineries, which include the northern Kaduna and the Warri refineries, have been shut for repairs since early 2019, and NNPC expects them to operate at about 90% of capacity when repairs are completed and they resume production in 2023.

As such, Nigeria has to rely 100% on imports of refined products. "Very little" of Nigeria's current production is processed, and instead sold into the international market, Kyari said.