Shoreline Group: Why the Saudi Arabia, Russia meeting delay is a good thing

Brent crude futures have shown a positive trend since Friday, fueled by hopes that Saudi Arabia and Russia will engage in talks to potentially reach an agreement on cutting global oil output. Kola Karim, the chairman of Shoreline Group, recently sat down with CNBC Africa to shed light on the implications of the delayed meeting and its potential impact on oil prices. Karim expressed optimism regarding the delay, citing Saudi Arabia's postponement of declaring its official selling price for June as a positive indication. He emphasized that the anticipation surrounding the meeting bodes well for potential consensus and market stability. Despite concerns from some analysts about the complexity of negotiations, Karim remains positive about the outcome of the meeting. When discussing the potential impact of production cuts on oil prices, Karim highlighted the challenges posed by the current global economic landscape. He referenced President Trump's suggestion of cutting 10 to 15 million barrels as a critical measure to address the oversupply in the market. However, Karim noted that the confluence of factors, including reduced consumption due to the pandemic, excess production, and plummeting prices, would not yield immediate price recovery. Instead, he projected a gradual price increase over the medium term. Karim also addressed the unique positions of major players in the oil industry, noting Russia's strategic advantage in natural gas production and Saudi Arabia's high oil output. He underscored the predicament faced by U.S. shale producers, who might be compelled to participate in production cuts due to financial pressures. Regarding Nigeria's oil-dependent economy, Karim warned of significant challenges ahead, especially given the country's heavy reliance on oil revenue. With oil prices hovering around $30 per barrel, Nigeria faces a severe economic strain, affecting its foreign exchange earnings and budgetary stability. Karim stressed the urgency of diversifying Nigeria's economy and expanding its gas sector to mitigate the impact of oil price fluctuations. In response to potential shutdowns of oil fields in Nigeria, Karim highlighted the tough decisions faced by African producers in managing operational costs and market uncertainties. Despite the difficult circumstances, he emphasized the importance of prudent financial decisions to navigate the current crisis and ensure long-term viability in the oil industry.