After months of dwindling demand and fluctuations in crude oil prices, which had crashed below $0 at a point, oil has now witnessed a resurgence in the last six days. Also, most countries are carefully reopening their economies after weeks of global lockdown.
As the world slowly moves towards resuming normal economic activities, oil industry players will be focused on how quickly things get back to shape. An uptick in economic activities signified by a return of public transportation, air travel, and reopening of factories will brighten the light at the end of the tunnel for oil prices. Some international oil experts have however argued that oil prices could only witness a surge later this year. According to them, an average of $35-40 per barrel might be possible by the end of the year.
For instance, a Norwegian consultancy firm Rystad Energy had stated that about $100 billion is expected to be cut in 2020 from E&P budgets, and that would, no doubt, be a negative development. The firm warned that if oil prices stayed below $30 per barrel in 2021, the total cut could reach $150 billion.
Rating agency Moody is a bit more optimistic, expecting a bounce in oil prices, but only in the medium term.
According to berry commodities group, oil prices in the long term will range from $50 to $70 per barrel. In the short term, Moody is less optimistic and sees the effects of CAPEX cuts trickling down from E&P companies to oilfield service companies (OFS).
How oil firms trim costs
Already, the ICCs are adjusting to the oil price crisis. For instance, last week, the Dutch-British oil and gas major Shell announced the reduction of its underlying operating costs by $3-4 billion per annum over the next 12 months compared to 2019 levels. It also announced a reduction of cash capital expenditure to $20 billion or below for 2020, from a planned level of around $25 billion.
In its own case, French oil major Total has also cut organic CAPEX by more than $3 billion, while planning savings of $800 million on operating costs in 2020 from $300 million announced earlier, along with a suspension of its buyback program.
Unlike the American supermajor ExxonMobil whose further cuts are in the pipeline, ConocoPhillips has started to cut its 2020 capital program by approximately 10% or $700 million, while Chevron targets $2 billion in cost savings. The IOCs aren’t the only ones suffering; with a financial crash in US shale, Canadian shutdowns, and of course, the OPEC deal.
Oil prices surge …
The oil futures in the New York exchange, which once traded below $0, was around $24 per barrel in Asian trading on Friday. This represents a 20% increase this week. Also, the Brent crude, which is around $30.15 per barrel, has had a 15% price increase in the last week. Nigeria’s Bonny Light also stands at N24.93, an increase of 10.16% as at Friday afternoon.
It was reported earlier that Saudi Arabia’s oil giant Aramco raised the price for all its crude oil grades to all regions for June, in a move that many analysts see as the start of demand recovery. This also hints that OPEC+ has started to cut production with the aim to stabilize the market.
But has the rebound come to stay?
Oil experts have described the surge as a welcome development driven by some factors. Director, Centre for Petroleum, Energy Economics and Law, Prof. Adeola Adenikinju, told Nairametrics in an exclusive interview that the development is hinged on a combination of demand and supply factors.
According to him, the reopening of global economies is bringing increased demand for energy services, thereby driving up oil demand. In addition, the cut in oil supply by OPEC+ members has also lowered excess demand in the market, as the global oil inventory figures have also shown some tentative positive signs.
On whether the surge has come to stay or not, he said, “If the rally would be sustained is still uncertain. This is because the fundamentals of the market have not changed significantly. Economies are opening up, however, the recovery is gradual and will take some time for economic activities to resume to pre-COVID-19 levels.
“There is uncertainty around the V-shaped recovery that has been predicted in some circles. In particular, the major source of global demand for oil, transportation, in particular, air transportation, is still largely under lockdown. International travels, tourism, etc., will not remain the same again, even when the vaccine is found.”
Adenikinju, who is also an associate of Delphi Ventura, US-based petroleum and energy-based consultancy firm, added that the daily commuting for work would also not remain the same, as employers accept the reality of working from home, and online meetings take centre stage.
If the surge continues, the oil experts expect the price of Nigeria crude oil, the Bonny light, to stay above $35 for Q3 and Q4, 2020. “It will pick up to mid-$40s or low $50s in 2021. However, Nigeria may not be able to fully take advantage of the increase because of production cuts that OPEC+ would need to maintain to sustain the market.
“Moreover, at higher prices, many of the shale oil producers would come back to the market and drive supply. Nigeria will also continue to face competition in its traditional market from other global suppliers, and reduce demand as some countries are using the Covid-19 pandemic to restructure their economies away from fossil fuels to renewable energy.
“The smart thing for Nigeria is to accept the reality that it will not be business as usual and find a way of increasing domestic value addition of its petroleum sector locally. We need to reduce costs of governance, and open up the economy for greater domestic and foreign investments,” he added.
Meanwhile, another oil expert, Chief Operating Officer, Oando Energy Resources, Ainojie Irune, urged stakeholders and Nigerians to stay optimistic, even as they see some casualties along the way to a rebound.
In an interview on CNN’s ‘First Move’ with Julia Chatterley, he explained that while most oil producers are currently battling with costs that they have very little control over, it is important for all to stay optimistic. He gave reasons why the surge could be sustained:
“We’re seeing an uptick in the price, we are seeing the decision by OPEC to cut 10 million barrels come in to realise the intention of OPEC; they’ve taken that huge step. But more importantly, the Government is stepping in to ensure that Independents like ourselves are engaged in conversations to ensure that process of survival, which is indeed a process for us, unknown as well, is managed jointly, to see that it takes the least amount of time to see a recovery.”
IMF assessing additional tools to provide aid to pandemic-hit countries
The IMF had earlier noted that the Nigerian economy would witness a deeper contraction of 5.4%.
The International Monetary Fund (IMF) noted that it is reviewing additional tools to help provide financing to poorest countries of the world as well as others that have been hit hard by the coronavirus pandemic. This was noted by the Fund’s Managing Director, Kristalina Georgieva.
The IMF had reduced its projections for the world economy, projecting a GDP growth of 5.4% in 2021 compared to 5.8% in its earlier forecasts as a result of the expected challenges to global value chains due to the coronavirus pandemic which has affected the global demand for goods and services. It had also reviewed its projection for Nigeria, noting that the Nigerian economy would witness a deeper contraction of 5.4% and not the 3.4% that it has projected in April 2020.
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Georgieva explained to finance ministers and central bank governors from the Group of 20 major economies in the world that they should consider extending a freeze in the official bilateral debt service payments that have been offered to the poorest countries beyond the end of 2020, and seek out better ways to promote private-sector participation.
She also noted that there is ardent need to think about “more comprehensive debt relief for many countries,” as a result of the severity of the crisis as well as the already high debt load that many of the respective countries already had to deal with.
UK and allies accuse Russia of hacking and stealing COVID-19 vaccine data
UK said that vaccine and therapeutic sectors in multiple countries have been targeted by Russian state intelligence.
The UK and its allies have accused Russian state intelligence of hacking international research centres that are in a race to develop a vaccine for COVID-19. The UK, US and Canada on Thursday, said that Russian intelligence is attempting to steal information on those vaccines through irresponsible cyberattacks.
It is, however, unclear if the research facilities have been damaged or if the vaccine programmes have been set back as a result of the hacks but the officials warned that the cyber-attacks are ongoing.
UK’s National Cyber Security Centre (NCSC), said that vaccine and therapeutic sectors in multiple countries have been targeted by a group known as APT29, which it said is almost certainly part of Russian state intelligence. Security agencies in the U.S. and Canada later issued their own statements backing up the findings. Russia denied involvement.
The British Foreign Secretary, Dominic Raab, said, ‘’It is completely unacceptable that the Russian intelligence services are targeting those working to combat the coronavirus pandemic. While others pursue their selfish interests with reckless behaviour, the U.K. and its allies are getting on with the hard work of finding a vaccine and protecting global health.”
The Russians have however denied the allegations by the UK and its allies.
In an explanation to Bloomberg, the Russian spokesman said, ‘’We don’t know who may have hacked pharmaceutical companies and research centers. We can only say Russia has nothing to do with these attempts. We don’t accept such accusations.’’
The NCSC said APT29, which is also known as Cozy Bear or The Dukes, has targeted U.K., U.S. and Canadian vaccine research and development organizations. They said the campaign of malicious activity is ongoing, predominantly against government, diplomatic, think-tank, healthcare and energy targets to steal valuable intellectual property.
A cybersecurity firm, Carbon Black, in a published analysis in March, said researchers have long linked APT29 to Russian intelligence agencies as for more than a decade, the group has carried out hacking campaigns that have targeted dozens of governments, research institutes, and corporations around the world.
The British claims were supported by partners at the Canadian Communications Security Establishment (CSE), the US Department for Homeland Security (DHS), Cybersecurity Infrastructure Security Agency (CISA) and the National Security Agency (NSA).
The NSA said organizations in the U.S. involved in vaccine development were also targeted by the hackers with the objective of the hacking and stealing information and intellectual property relating to the development and testing of Covid-19 vaccines.
The Canadian government said they are working with Westminster and Washington to stop these cyber-attacks.
Okonjo-Iweala shares her vision with WTO members, as she pitches for DG post
Okonjo-Iweala said she has all it takes to become the first African DG of the global trade force.
Nigeria’s former Coordinating Minister for the Economy under President Goodluck Jonathan, Ngozi Okonjo-Iweala is optimistic about being appointed as the next Director-General of the World Trade Organisation (WTO). Her optimism is not limited to the endorsements she got from President Muhammadu Buhari , National Assembly (Senate and House of Representatives) and Economic Community for the West African States but the confidence that she has what it takes to become the first African and female WTO DG since the global trade force was established in 1995.
While pitching for the post in Geneva, Switzerland on Wednesday, two-time Nigeria’s Finance Minister shared her vision with the WTO’s 164 member states. Along with Okonjo-Iweala, seven other candidates also pitched for the job. as they presented themselves to the members of the global trade body. The other candidates are Abdel-Hamid Mamdouh (Egypt), Amina Mohamed (Kenya), Jesús Kuri (Mexico), Tudor Ulianovschi (Moldova), Yoo Myung-hee (Korea), Mohammad Al-Tuwaijri (Saudi Arabia), and Liam Fox (UK).
Speaking at the meeting in Geneva, Switzerland, on Wednesday, the former World Bank director said she has all it takes to become the first African and first female DG of the global trade force established in 1995.
‘I am a bundle of talents’
Contrary to the allegation that she is more of a public sector, she said, “WTO needs leadership and it needs someone able to bring a bundle of qualities – political ability and ability to reach decision-makers. International contacts, I have that. Managerial capability from my long years in a multilateral organisation like the World Bank. The ability to forge consensus, to negotiate, a reformer. I have an established reputation as a strong reformer both at the World Bank and also in my country. I’ve even written a book about it.
“So, I think together I bring a bundle of qualities – public sector, private sector – because you need to know how do businesses see the WTO and what needs to be done. What about micro-medium and small enterprises? Just to find out what it means to be a small-medium enterprise owner, I started one myself in Nigeria to see what are the obstacles in the way that you need to clear out.
“So, I’m a doer. I’m solution-oriented and pragmatic. I bring together the bundle of qualities and the leadership acumen that you need to lead this. So, I would hope that if selected from the African continent, it should be me.”
To critics that alleged that Okonjo-Iweala is more of a financial sector expert and inexperienced in Trade, she described such as a ‘wrong notion.’ She said:
“I am a strong believer in the role of trade and of the MTS to lift millions out of poverty and bring shared prosperity. Throughout my career as a development economist at the World Bank, I worked on tough economic policy reforms including trade policy in middle and low-income countries. As a two time and longest-serving Finance Minister in my country, I had the Customs Service reporting to me, so issues of trade facilitation and trade policy were squarely part of my remit. Together with the Trade Minister, I also worked on regional trade issues including the ECOWAS Common External Tariffs.
“I can bring a fresh pair of eyes to the WTO’s challenges. Enhancing and renewing the organization will require recalling the core objectives and principles on which the MTS was built – the value of open trade, competition and non-discrimination, security and predictability of market access, fair trade and transparency. These principles contribute to economic growth and development. I have seen how essential and powerful trade can be in promoting not only economic growth and development but also, with the right incentives and policies, fostering inclusiveness of women and youth involved in entrepreneurial activities through micro, small and middle-sized enterprises.”
On how she intends to address challenges that have eaten deep into the fabrics of the global trade body, she explained that the first hurdle to tackle would be to build trust among the membership. She said,
“Current problems are not solely of a technical nature, some require political solutions. Throughout my career, I have been involved in difficult negotiations with high political stakes including debt relief negotiations with both the Paris and London clubs. I have brokered numerous agreements that have produced win-win outcomes.
“A good example is during the 2008–2009 food crisis when large wheat exporting countries imposed export restrictions- driving up the price of bread and other wheat-based products in a large number of developing countries. As Managing Director of the World Bank, I flew to one leading exporter, met with the leadership and over several meetings and negotiations, I persuaded them to remove the export restrictions. The affected developing countries benefited by having access to wheat and wheat products thereby ensuring their food security, while the country imposing the restrictions also benefited from increased export prices.”
Her vision for WTO
With the support from Aid for Trade initiative, her vision is to negotiate outcomes that would help developing countries, particularly the least developed countries, to increase their participation in the trading system, improve their policy environments, and ensure that trade makes a strong contribution to their sustainable development and inclusion in the MTS.
“I want to conclude by reiterating the importance of the WTO at this critical, uncertain and challenging time in the world. The WTO is needed to ensure trade and global markets remain open. Its convening power and ability to provide a unique forum where countries can come together around shared interests is still vital,” she added.
DG’s Selection process
General Council Chair, David Walker of New Zealand had informed WTO members of nominations as soon as they were received. After 8 July, Walker issued to members a consolidated list of all candidates, which led to the on-going pitch process with the members at a special General Council meeting.
In all, only time will tell if history will be made after the selection process. History can be made if Okonjo-Iweala is selected as the first female or African DG or if any of the other three African candidates are selcted.