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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 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%.

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.

[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]

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

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.”

Crude, Oil, IEA

Crude Oil

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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.”

[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.

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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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Business News

Heavy sell-off in Guinness shares leads to N6.9 billion market value loss in a single day

Shares of Guinness Nigeria Plc suffered a 9.89% loss today.



Guinness Nigeria Plc Reports Full Year F19 Results

Guinness Nigeria Plc suffered a 9.89% loss today following a heavy sell-off in the shares of the brewer. This triggered a market value loss amounting to about N6.9 billion at the close of trading activities on the Nigerian Stock Exchange, as investors scaled-down stakes in the brewer.

Data tracked at the close of the market today revealed that the shares of GUINNESS declined from N31.85 per share at the market open, to N28.70 per share at the close of the market today, to print a loss of 9.89%.

This decline saw the market capitalization of the leading maker of beer and spirits fall from N69.75 billion to N62.86 billion at the close of trading activities today, putting the total market value loss at N6.89 billion.

The shares of Guinness at the close of the market today cleared at N28.70 per share, 9.89% lower than the closing price of N31.85 per share yesterday.

At the current price, Guinness shares are currently trading 20.27% lower than their 52-week high of N36.00 per share. However, the shares of the company have returned about 120.8% gains for investors who bought them at their 52-week low trading price of N13.00 per share last week.

During trading hours on the Exchange today, about 159,380 ordinary shares of Guinness Nigeria Plc worth about N4.57 million, were exchanged in 27 executed deals.

The shares of Nigerian Breweries Plc and Golden Guinea Breweries Plc closed flat at N50.1 per share and N0.81 per share respectively, while the shares of International Breweries Plc shed 0.88% to close low today at N5.65 per share.

What you should know

  • At the close of trading activities today, the NSE All-Share Index and market capitalization appreciated by 0.29% to close higher at 39,128.34 index points and N20.477 trillion respectively.
  • The NSE Consumer Goods Index, an investable benchmark designed to track the performance of the shares of consumer goods companies like Guinness Nigeria Plc, depreciated by -0.35% to close the day lower at 553.26 index points.

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Business News

NAICOM revokes operational licence of UNIC Insurance, appoints Receiver/Liquidator

NAICOM stated that it had appointed Hadiza Baba Gimba as the Receiver/Liquidator to wind up the affairs of the company.



Recapitalisation: 26 firms get NAICOM's approval

The National Insurance Commission (NAICOM) on Wednesday announced the withdrawal of the operational licence issued to UNIC Insurance Plc.

Although no official reason has been provided for the revocation of the insurance firm’s operating license, NAICOM, however, stated that the decision of the regulator was in the exercise of the powers conferred on it by the enabling laws.

According to a report from the News Agency of Nigeria (NAN), this disclosure is contained in a notice which was issued by the commission in Lagos to the general public and policyholders, where it noted that the revocation of the operational license, RIC 043, is with effect from March 25.

NAICOM, thereafter stated that it had appointed Hadiza Baba Gimba as the Receiver/Liquidator to wind up the affairs of the company.

NAICOM in its statement said, “The general public/policyholders are by this notice required to direct all inquiries and correspondence regarding UNIC Insurance to the receiver/liquidator.

The receiver/liquidator will be dealing with the company’s liabilities in accordance with the provision of Insurance Act 2003.’’

What you should know

  • It can be recalled that NAICOM, for the third time in June 2020, gave insurance firms in the country a one-year extension to meet the recapitalisation obligation that was recently set for them apparently due to the coronavirus pandemic which had disrupted the activities of most insurance companies.
  • Some insurance companies had been going through some bad patches with a good number of them struggling to meet up with their obligations and the recapitalization requirements.
  • The recapitalisation programme requires life insurance firms to meet a minimum paid-up capital of N8.0 billion, up from N2.0 billion previously. In the same vein, general insurance companies are required to raise their minimum paid-up capital to N10.0 billion from N3.0 billion previously.
  • The regulatory capital for composite insurance was raised to N18.0 billion from N5.0 billion previously while reinsurance businesses are now required to have a minimum capital of N20.0 billion from a previous N10.0 billion.

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