The worst week in the history of the oil markets came to an end last week Friday as oil prices recovered some of its losses. Oil prices stabilized after days of turbulence, but recent recovery might just be temporary.
Brent crude, the international benchmark, was above $21 a barrel while West Texas Intermediate, (W.T.I.) the U.S. oil benchmark, was trading just below $17 a barrel. Market sentiments are divided on where oil prices would head in the short term based on new activities taking place.
Would prices keep rising?
Last week, Oil bulls weighed in on production cuts and geopolitical tension between the United States of America and Iran. Operators in the U.S. have begun to shut in old wells and stop new drilling, which inadvertently could reduce output by 20%, according to I.H.S. Markit Ltd. In other production-cut updates, the OPEC+ alliance have also reacted to the slump in prices by slashing daily production.
According to Bloomberg reports, representatives from Kuwait and Algeria claim they will begin cutting output ahead of schedule. This includes Nigeria because there is nowhere to store any more of its oil. The other reason behind the bullish run in oil prices last week was the threat of conflict between the U.S. and Iran. On Wednesday, U.S. President Donald Trump tweeted that the “United States Navy should shoot down and destroy any and all Iranian gunboats if they harass their ships at sea.”
These global activities give bullish investors some optimism. Going by antecedents, traders know some geopolitical tension involving oil-producing states boosts prices in the short run. However, a tweet by Donald Trump, just like many of his other tweets, exaggerates the intensity of the supposed “escalation” between Iran and the U.S. Analysts believe this would fade off on oil prices in the long run. Neil Wilson, chief markets analyst at Markets.com in a release with Business Insider, claimed, “Donald Trump started to look desperate, stoking tensions with Iran. You would not be surprised if it were a dastardly plan to boost oil prices.”
Besides, there are slight chances that demand would pick up as China and a few states in America begin to reopen partially. According to a spokesperson for China’s National Health Commission, Mi Feng claimed that “the latest news is that by April 26, the number of new coronavirus patients in Wuhan was at zero, thanks to the joint efforts of Wuhan and medical staff from around the country.”
Would prices fall?
Analysts believe the rally last week is what traders call “a dead cat bounce.” The triple whammy of low demand, high supply, and minimum storage are the main determinants for oil prices. With travel and movement still restricted in most countries, there is a shortage of demand for oil consumption as COVID-19 lingers.
Bill Gates has warned that “the world is not even halfway through the coronavirus pandemic” in an interview with N.B.C. Today. On the supply side, there are chances the market will wave off the cuts in production as investors know cutting production is not as easy as shutting a tap.
Some companies and countries might still produce to stay afloat in these times. Looking at the storage problem, which triggered negative prices a week ago, The E.I.A. in its weekly blog, stated that “The availability of storage in Cushing would remain an issue in the coming weeks, however, and could still result in volatile price movements in the June W.T.I. futures contract or other U.S. crude oil spot prices that face limited storage options,”. Nothing really has changed in the fundamentals to turn the oil markets bullish.
What should we expect?
“Commodities are spot assets, not anticipatory assets and must clear current supply and demand, which still remain extremely out of balance in all markets,” said Goldman Sach’s chief commodity strategist Jeffrey Currie. On this premise, we examine both cases for direction on prices.
The biggest bullish driver for oil prices would be voluntary production cuts from the U.S. oil companies, OPEC+ countries, and members of G20 who supported the need for global cuts. The historic 9.7 million barrels per day cut would begin this week on May 1 and would extend through the end of June. Much focus would be on how countries comply with the output cuts agreements.
As for the Oil Bears, they still lean towards the elephant in the room, which remains the demand destruction caused by the Coronavirus and the availability of storage facilities for excess oil. The failed Gilead Sciences drug trial implies the virus would live to “Die another day.” Provided the virus persists, we expect oil to range between the $18-$28 dollars, as seen in the chart below.
Disclaimer: This article is a general publication dedicated to education for investors and traders. The information provided herein is not to be construed as a recommendation to buy or sell oil futures. As on the day of writing this article, the author has no open position in the oil market.
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Dapo-Thomas Opeoluwa is a Global Markets analyst and an Energy Trader. He is currently an MSc. student in International Business, Banking and Finance at the University of Dundee and holds B.Sc in Economics from Redeemers University. As an Oil Analyst at Nairametrics, he focuses mostly on the energy sector, fundamentals for oil prices and analysis behind every market move. Follow @DapoThomas1 on twitter.
Rivers State unemployment figures by NBS are fake – Wike
Governor Wike has dismissed the figures provided by the NBS concerning the rate of unemployment in his state.
The Governor of Rivers State, Nyesom Wike says that the National Bureau of Statistics’ data on unemployment in Rivers State is fake and politically motivated.
The Governor disclosed this during an interview with Channels TV on Friday morning. He said the figures are fake and political.
“It is fake; it is political. The rate (unemployment) is high, but I don’t believe in their statistics,” he said.
Nairametrics earlier reported in August that the South-South geopolitical zone is the most affected region with a 37.0% unemployment rate, followed by South East (29.1%), North Central (27.9%), Northeast (27.9%), North West (26.3%), and South West (18.0%).
Rivers State is ranked second place, with unemployment in the region at 43.7%, and underemployment at 19.8%. 1,714,189 residents were recorded as unemployed, with a total labour force of 3,921,860.
“If you have a lot of construction jobs going on, for example, does that not create employment? In Rivers State today, nobody can tell me that we have not tried in terms of employment; to reduce the level of unemployment,” Wike said.
The Governor cited formal and informal infrastructural projects across the state, which offers a means of livelihood to labourers. He went further to call on the NBS to be more deligent in their research.
“NBS should come to the state and see for themselves and see what we are doing to create jobs. Not just sitting in their offices. They never deployed anybody to come here,” Wike said.
FAAC disburses N696.2 billion in July 2020, as Lagos State parts with N1.46 billion
The sum of N696.18 billion to the Federal, State, and Local governments in July 2020 from the FAAC account.
The Federation Account Allocation Committee (FAAC), disbursed the sum of N696.18 billion to the Federal, State, and Local governments in July 2020, from the revenue generated in the month of June 2020. This was stated in the latest FAAC report, released by the National Bureau of Statistics (NBS).
According to the report, the monthly disbursement increased by 27.2% compared to N547.3 billion shared in June, and 14.8% increase compared to N606.2 billion disbursed in May 2020.
Checks by Nairametrics research, shows that a total of N4.58 trillion has been shared to the three tiers of government, between January and July 2020. Highest disbursement was recorded in April (N780.9 billion), followed by N716.3 billion in January 2020.
Meanwhile, Lagos State – the economic hub of Nigeria, parted with N1.46 billion as external debt deductions in the month, indicating a total of N9.74 billion deductions between January and July 2020.
Explore the Nairametrics Research Website for Economic and Financial Data
- The amount disbursed in July comprised of N474.53 billion from the Statutory Account, N128.83 billion from Valued Added Tax (VAT), N42.83 billion from Exchange Gain Differences, and Distribution of N50 billion from Non-Oil Revenue for the Month.
- Federal Government received a total of N266.13 billion from the total disbursement. States received a total of N185.77 billion, and Local Governments received N138.97 billion.
- The sum of N28.50 billion was shared among the oil producing states as 13% derivation fund.
- Revenue generating agencies such as Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS), and Department of Petroleum Resources (DPR) received N6.32 billion, N15.05 billion, and N2.68 billion respectively as cost of revenue collections.
South-South scoops highest share
The South-South region, also known as the Niger Delta region, received the highest share of the disbursement in the month of July. The region received a sum of N49.44 billion, representing 25.4% of the total net allocation for states.
This is largely because the region contributes mostly to crude oil production in Nigeria, which is a significant source of revenue for the federation. Out of the six states in the region, only Cross River State is not an oil producing state. Hence, Rivers, Edo, Akwa Ibom, Bayelsa, and Delta States received a total of N24.28 billion as part of 13% oil derivation fund.
North-West region received N36.83 billion (18.9%); followed by North-Central region, which received a net total of N30.69 billion (15.8%). Others include South-West (N29.55 billion), North-East (N26.32 billion), and South-East (N21.97 billion).
External debt deductions
A total of N4.47 billion was deducted from the state’s allocation, as external debt deductions for the month of July. Lagos State parted with the highest amount of N1.46 billion, representing 32.6% of the total debt deductions in the month. A sum of N9.74 billion has been deducted as a result of external debt obligations between January and July 2020.
It is worth noting that, the State’s external debt has declined by 9.67%, from $1.39 billion recorded as at the end of December 2019 to $1.26 billion in June 2020.
Others on the list of top 5 deductions are, Kaduna (N414.6 million), Oyo (N305.4 million), Rivers (N280.3 million), and Cross River (N222 million). On the flip side, Ogun State parted with the lowest, as N9.1 million was deducted, followed by Borno (N21.6 million), and Taraba (N24.5 million).
- With dwindling federally collected revenue, caused by volatility in global crude oil price and economic downtrend caused by COVID-19 pandemic, it is evident that federal allocations will likely face drastic decline, which is a cue for the State governments to strategize on more creative ways of generating revenue internally.
- A quick check at the states’ IGR numbers, shows that 91.9% of the states in Nigeria with the exception of Abuja, Ogun, and Lagos States rely more on federal allocation, as against internally generated revenue.
- This implies that several states in Nigeria are technically bankrupt without debt financing, and Federal Government monthly allocation.
Buhari to finally send Petroleum Industry Bill to National Assembly next week
Sources in the Presidency have disclosed that the President may be presenting the bill to the National Assembly.
President Muhammadu Buhari is expected to present the long-awaited Petroleum Industry Bill (PIB) to the Senate as early as next week.
According to Reuters, who were quoting 4 sources familiar with the development, the presentation of the bill to the National Assembly, follows its official approval by the president late last week. This is as the National Assembly has already formed teams of members that will work most closely on the individual portions of the bill.
Both chambers of the National Assembly must have to pass the bill after deliberating on it before it can then be passed on to the president for his final signature.
The PIB which is an oil reform bill has been in the works for about 20 years, is key to the repositioning of Nigeria’s Oil and Gas Industry under its post-COVID-19 agenda as the main laws governing oil and gas exploration have not been fully updated since the 1960s due to some contentious issues like taxes, payments to local communities, terms and revenue sharing within Nigeria.
The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), had disclosed that the delay and non-passage of the bill has made international investors to start losing confidence in the country’s oil and gas industry.
While revealing last month that the PIB will be presented to the National Assembly in the next few weeks, the Minister of State for Petroleum Resources, Timipre Sylva, also said that the executive arm will be requesting the lawmakers to specially reconvene to receive and start deliberations on the bill.
These oil reforms and regulatory certainty became more pressing this year as low oil prices and a shift towards renewable energy made competition for investment from oil majors tougher.
The draft copy of the bill which was prepared by the Petroleum Ministry is a product of series of consultation between the federal government, oil and gas companies and other industry stakeholders.
Excerpts from the bill reported by Reuters include provisions that would streamline and reduce some oil and gas royalties, increase the amount of money companies pay to local communities and for environmental clean-ups alter the dispute resolution process between companies and the government.
It also included measures to push companies to develop gas discoveries and a framework for gas tariffs and delivery. Commercializing gas, particularly for use in local power generation, is a core government priority.