OPEC agreement implies cutting oil production in Angola

14 April 2020

The agreement between the Organization of Petroleum Exporting Countries (OPEC) and non-member countries to bolster the recent fall in oil prices is expected to lead to a cut in Angolan oil production to around 1.1 million barrels per day.

The cut in production, decided on 9 April, will be 23% for all signatory states and is based on October 2018, at which time Angola had daily production of 1.53 million barrels, which after reviewing the level, will entail a reduction to 1.18 million barrels per day.

The country has produced between 1.3 million and 1.4 million barrels per day in recent months, down from more than 1.6 million registered in 2017 and 2018, according to the OPEC reports.

The cut is due to be applied at the beginning of May, for two months, and is expected to be lifted in the following months, based on decisions made at the Summit between the OPEC countries, Russia, the United States and other non-OPEC members, which aims to reduce world production by 9.7 million barrels per day, to balance the supply and increase prices.

Despite the decision, oil prices fell on international markets, and Brent oil ended the day at around US$31 per barrel.

China has been, by far, the largest importer of Angolan oil, buying nearly two thirds of the total produced, according to figures from Sonangol.

A recent report from the Institute of Natural Resource Governance Institute (NRGI) of the United States, quoted by CLB Brief, showed that the total of around US$25 billion in loans granted by China to Angola, paid for or backed by oil supplies, most (a line of US$15 billion granted by the Development Bank of China), has repayment terms that include variations in the price per barrel of Brent – increasing when the price rises on international markets and vice versa.

Some of the loans do not have a fixed deadline for settlement, but rather a model for calculating the value of each barrel of oil, and come to an end when the total value of exports to China equals the amount financed by Chinese banks.

In the current situation of low prices (near US$30), this second type of agreement implies that the repayment of the loan will be delayed by a few years.

Other loans from Chinese banks to countries like Angola are settled via a specific quantity of barrels of oil to be exported every day (10,000 barrels, or 300,000 barrels per month, in one case) – thus, sensitivity to the price variation is lower.

Angola’s debt to China represents nearly half of its total amount of debt, and in 2015, after the fall in the price of oil, China restructured and renegotiated financing terms.  (macauhub)