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Oil Price falls as fresh concerns rise over Saudi’s drone attacks

Oil price has dropped as fresh concerns over the threat of a military response to attacks on Saudi Arabian crude oil facilities.

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Oil prices

Oil price has dropped as there are fresh concerns over the threat of a military response to attacks on Saudi Arabian crude oil facilities.

Note that the attacks cut the country’s oil output by 50% and sent oil prices to a three-decade jump of 20%.

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Following the attacks on Saudi’s oil facilities, the U.S President, Donald Trump threw frenzy in the windy, after his tweet indicated that Iran was the likely culprit behind the attacks. This has slightly built pressure on oil prices, as Brent crude dropped to $67.31 a barrel on Tuesday. Equities and other markets were also pressured.

According to New York Times, the U.S government has released satellite photographs showing what officials said were at least 17 points of impact at several Saudi energy facilities from strikes they said came from the north or northwest.

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[READ MORE: Oil prices spike after Saudi Aramco facilities suffer drone attack]

While Yemen’s Houthi rebels are reportedly claiming responsibility for Saturday morning’s attacks, recent reports stated that Saudi Arabia had declared Iran as directly responsible for the drone attacks on an oil field and refinery at the weekend, with satellite photos revealing how precise the strikes were.

Oil Price Reactions: Following the attacks, Oil prices ended nearly 15% higher on Monday, with the Brent benchmark seeing its biggest jump in about 30 years. Basically, the rise came after two attacks on Saudi Arabian facilities on Saturday knocked out about 5% of global supply.

  • Brent crude initially surged 20% at the start of Monday’s trading but eased back to end at $69 a barrel, up 14.6% while the US oil prices finished up 14.7%, the biggest jump since 2008.
  • Specifically, the attacks which led to global crude output 5% drop caused the biggest surge in oil prices since 1991.
  • Meanwhile, oil fell more on Tuesday morning as the market hung on tenterhooks over the threat of a military response.
  • Brent crude dropped 5.4% at $67.31 a barrel, and West Texas Intermediate was down 87 cents, or 1.4%, at $62.03 a barrel.

On the other hand, energy experts are split over the reactions of the oil prices to the recent attacks. Some have stated that while a production shortfall from an attack on one pipeline or refinery could often be offset by others, a return to full capacity might take months and this might drive prices up further.

[READ MORE: Oil Prices jump after Trump provides updates on trade-war]

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Dragan Vuckovic, president of Mediterranean International, an oil service company that works in Egypt and Iraq stated:

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This changes the oil markets psychologically for a couple of years for sure now that everything is shown to be vulnerable. One drone can hit a refinery or an oil-field installation and that causes fires, destruction and stops all production. It means less oil on the market and higher oil prices.”

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“If a full-fledged war between Iran and Saudi Arabia breaks out, there would be no limit to how high prices could go,” Jay Hatfield, portfolio manager at InfraCap MLP, an exchange-traded fund that invests in oil pipelines stated.

City Index analyst, Fiona Cincotta had a slightly contrary view. According to Fiona as quoted by Reuters, “With the U.S. ‘locked and loaded’ awaiting signs from Saudi Arabia that Iran was involved, tensions in the Middle East could get worse before they get better. Under these circumstances, the price of oil could remain elevated for some time yet.

“However, let’s not also forget that the demand picture isn’t great right now, which will dampen the oil price quickly. Most recently China’s industrial production figures disappointed overnight.”

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[READ MORE: Trouble as crude oil price drops to a 7-month low, hits $57 a barrel]

Saudi’s Defiance: Despite Saturday’s attack, Saudi Arabia’s state oil giant, Aramco, has informed some of its major Asian customers that they would receive all the oil supply they had contracted — although lighter grades would likely be replaced with heavier crude, according to sources.

The U.S is also in the stand, as Donald Trump disclosed that he had authorized the release of oil from the Strategic U.S Petroleum Reserve, if needed, in a to-be-determined amount to keep the market well supplied.

The bottom line: While there are early indications that oil prices may hit $100 per barrel high, the surge in oil prices following attacks on Saudi’s facilities may just be short-lived. It should be noted that while the US stands as one of the few countries that would be able to increase exports in the short term, Saudi Arabia still has vast quantities of crude in storage, which has been estimated to equal about 26 days of current crude exports along with other strategic storage facilities.

In the meantime, the longer the processing facility remains disrupted, the larger the potential impact on actual crude flows will be.

[READ MORE: U.S returns to Nigerian Oil, imports N349 billion crude oil in three months]

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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Coronavirus

CBN announces new policy measures, reduces interest rates for financial institutions

CBN will be reducing interest rates on its facilities through participating financial institutions from 9% to 5% per annum for a year.

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CBN-Governor-Emefiele, Investors’ and Exporters’ forex window aided Naira stability – Emefiele , external reserves, Financial Inclusion: CBN licensed 15 mobile money operators – Emefiele , Rates continue to decline as banks struggle to meet CBN’s 65% minimum LDR, CBN releases new guidelines, to fine banks N2 million over customers’ complaint , CBN: FG fell short of monthly allocated collected revenue by N388 billion, CBN issues new rule for use of PoS, merchants to face sanction after deadline, CBN may devalue naira in 2020 as experts highlight red flags in the economy, CBN appoints and redeploys directors within its ranks, Banks look to lending rates for revenue, as slash on e-transaction charges affect operations, CBN discloses currency in circulation worth N2.44 trillion, CBN to commence recycling of mutilated naira notes, Agriculture: CBN's revised policy on the dairy industry, CBN condemns foreign money transfers to Nigeria, Experts outline effect of CBN’s longer term contract, Bank’s lending rates decline albeit slower than expected, CBN releases new capital base, sanctions for Microfinance Banks, CBN reveals banks’ foreign assets rise to N14.19 trillion in 2019, CBN insists on no devaluation, threatens to sanction those responsible for false speculations, CBN considers interest rate cut as trade, economy decline over Coronavirus, Defending the naira at a cost, CBN announces initial policy response to COVID-19, CBN stops oil companies from selling dollar to NNPC, here’s why, Amid Coronavirus spread, CBN directs staff to stay at home, External reserves to fall below $30 billion, more forex restrictions expected, UPDATE: Fitch downgrades Nigeria's IDR to "B", says CBN's remedial policy not enough, What constitutes Nigeria’s external reserves?, CBN to create housing funds for developers, Nigeria Trade: CBN reviews exchange rate for cargo imports, Nigerian Fintechs re-strategize with CBNs’ postponement of revised MFB license regulations

As part of its monetary and financial policy measures to further mitigate the impact of the coronavirus pandemic on households, and businesses, the Central Bank of Nigeria (CBN), has approved regulatory forbearance for the restructuring of credit facilities in the Other Financial Institution (OFI) sub-sector.

This was disclosed in a circular signed by the CBN’s Director for Financial Policy and Regulatory Department, Kevin Amugo, on Wednesday, May 27, 2020.

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In the circular, stated that Amugo the apex bank will be reducing interest rates on its facilities through participating financial institutions from 9% to 5% per annum for a year with effect from March 1, 2020.

According to the circular, CBN has approved regulatory forbearance for the restructuring of credit facilities in the OFI sub-sector as follows:

‘’CBN Intervention facilities availed through participating OFIs are granted a further one-year moratorium on all principal repayments, effective March 1, 2020.

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‘’Interest rates on the CBN intervention facilities through participating OFIs hereby reduced from 9% to 5% per annum for 1-year effective March 1, 2020.

‘’OFIs are granted leave to consider temporary and time-limited restructuring of the tenor and loan terms for households and businesses affected by COVID-19, subject to the recently issued guidelines for restructuring affected credit facilities in the OFIs sub-sector.”

This new policy measure by the apex bank is in continuation of its intervention in the nation’s economy so as to help manage the crisis caused by the coronavirus pandemic and reduce its effects on household and businesses.

This is coming a day before the Monetary Policy Committee (MPC) meeting for the month of May which has been slated for tomorrow Thursday, May 27, 2020.

Meanwhile, the CBN said that it shall continue to monitor developments and implement appropriate measures to safeguard financial stability and support stakeholders impacted by the COVID-19 pandemic.

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Economy & Politics

President Buhari directs Ministries of Power, Finance, BPE to seal Siemens deal

Presidency has approved the release of funding for the first part of Phase 1 of the PPI, to kick-off the pre-engineering and concession financing workstreams.

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Nigeria-Siemens power deal get N61 billion allocation 

President Muhammadu Buhari has directed the Ministries of Power, Finance, and the Bureau of Public Enterprise (BPE) to conclude the nation’s engagement with Siemens AG over regular power supply.

The directive, which was issued via the Presidency’s Twitter handle on Wednesday, was to start the pre-engineering & concessionary financing aspects of the Presidential Power Initiative (PPI).

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PPI is a power infrastructure upgrade and modernization Programme agreed to by the Federal Government and Siemens AG of Germany, with the support of the German Government. The ultimate goal of the initiative, according to the government, is to modernize and increase the Nigerian electricity grid capacity from its current capacity of  about 5 GW to 25 GW, over three phases.

How it works: Under the PPI, Nigeria on behalf of the other shareholders in the Electricity Distribution Companies (DisCos), will invest in infrastructure upgrades in the form of improved payment systems, distribution substations, transformers, protection devices, smart meters, and transmission lines among others.

The President explained that all DisCos have, directly and through the BPE, been diligently carried along over the last 15 months to understand in detail the challenges in the electricity systems.

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Funding: The funding for the PPI will be secured under concessionary terms (up to 3-year moratorium and 12-year repayment at concessionary interest rates) through the German Euler Hermes cover, which Nigeria will on-lend as a convertible loan to the other shareholders in the DisCos.

According to the statement, President Buhari has approved the release of funding for the first part of Phase 1 of the PPI, to kick-off the pre-engineering and concession financing workstreams.

“To ensure fairness and transparency of the intervention, the President has also directed that the nation engage the International Finance Corporation (‘IFC’) to assist in developing the commercial structure of the intervention…

“The President has also directed that to ensure value for money and preserve the integrity & transparency of the procurement process under the Govt-to-Govt framework, Siemens AG shall be solely responsible for nominating its EPC partners to perform all onshore works; NO middlemen.

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“Our goal is simply to deliver electricity to Nigerian businesses and homes… Our intention is to ensure that our cooperation is structured under a Govt-to-Govt framework. No middlemen will be involved, so that we can achieve value for money for Nigerians,” President Buhari added.

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The PPI journey started on August 31, 2018, when Chancellor Angela Merkel visited Nigeria and met with President Buhari. Then the Chancellor brought along with her a business delegation that included the Global CEO of Siemens.

Nigeria and Germany agreed to explore cooperation in a number of areas, including Power.

PPI was designed to deliver improved power supply nationwide, with attendant results in job creation, investor confidence, cost and ease of doing business and economic growth. The partnership is also  expected to guarantee training & capacity building for thousands of young Nigerians (non-graduates, students & graduates).

Other goals include the creation of economic opportunities for Nigerian engineering companies that will serve as local vendors for the provision of manpower and equipment. Overall, the partnership will guarantee inflow of additional investment into the power sector.

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Companies

Endeavour honours founders of Kobo360

Fixing Africa’s supply chain is clearly important for commerce on the continent.

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Kobo360

Endeavour, a leading global movement for high-impact entrepreneurship, has honoured the founders of Kobo360, Obi Ozor and Ife Oyedele as Endeavor Entrepreneurs.

Kobo360 is a digital logistics platform that uses big data and agile technology to reduce friction and improve efficiency in the African logistics ecosystem.

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Managing Director, Endeavor in Nigeria, Gihan-Mbelu, explained that the company is excited to welcome Kobo360 into Endeavor’s network which includes some of the world’s most exciting scale-up entrepreneurs and most experienced mentors and investors.

He said, “Fixing Africa’s supply chain is clearly important for commerce on the continent, and Kobo360’s rapid growth over the past 3 years is evidence that the company’s valuable services are in critical demand. Obi and Ife are inspiring founders and their relentless focus on scaling Kobo360 serves as an inspiration to high-impact entrepreneurs everywhere.”

Meanwhile, since launching in 2017, Kobo360 has surpassed several milestones, including a $30 million Series A in August 2019.

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“It’s an honour to be joining this global network of high-impact entrepreneurs and to have Endeavor recognise our efforts to transform Africa’s logistics sector using technology. As entrepreneurs, we wanted to turn African problems into African opportunities.

“Focusing on logistics, Ife and I started Kobo360 to not only fix the inefficiencies that exist, but to build opportunities for the businesses we serve and most importantly, the hundreds of thousands of truck drivers across Africa. This is a fundamental milestone in Kobo360’s journey; our Global Logistics Operating System [GLOS] will revolutionize supply chain across emerging markets, Ozor, Co-founder & CEO of Kobo360.

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