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Global oil supply to drop by 12 million b/d to 9 year low, covid-19 resurgence still a concern – IEA

IEA has just released its Oil Market Report for May 2020, with reliable data, forecasts, and analysis of trends in the global oil market.

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Global oil supply to drop by 12 mb/d to 9 year low, covid-19 resurgence still a concern - IEA

The International Energy Agency (IEA), has said that global oil supply is expected to drop by 12 million barrels per day in May to a 9-year low of 88 million b/d. This was disclosed in its Oil Market Report for May 2020.

The significant decline for global refining activity has shifted to May, as the April estimate was revised, based on new data and higher demand. In 2020, global runs are expected to fall by 13.4 Mb/d year on year with 2020 average down by 6.2 Mb/d.

From highlights of the report, there was an upward adjustment of 3.2 million barrels per day to the global demand for 2020. This can be attributed to the gradual easing of lockdown measures globally, and better than expected mobility in the Organization to Economic Co-operation and Development (OECD).

This is still sharply down from last year by 19.9 Mb/d. The outlook for 2020 as a whole, shows a demand fall of 8.6 Mb/d, which is 0.7mb/d more than what was in the previous report.

(READ MORE: PWC report details how COVID-19 will impact Nigerian FinTechs)

The report stated, ‘’The OECD data for March, shows that industry stocks rose by 68.2 million barrels. The total OECD stocks stood 46.7 million barrels above the 5-year average and due to the weak outlook, now provide an incredible 90 days of forwarding demand coverage.

“Preliminary data show that US crude stocks increased by 53.7 million barrels in April (i.e. 1.8 Mb/d) and crude inventories in Europe and Japan also rose by 3.1 million barrels and 3 million barrels respectively. In April, floating storage of crude oil increased by 9.9 million barrels to 123.8 million barrels.”

Global oil supply to drop by 12 mb/d to 9 year low, covid-19 resurgence still a concern - IEA

According to IEA, oil prices dropped in April based on weak demand due to COVID-19 and record-high middle east exports, especially with the trade war between Russia and Saudi Arabia.

Negative oil futures prices were seen for the first time when WTI sold for -$37/barrel the day before the May contract expired. The easing of lockdown measures in some countries provided support to the gasoline market.

The report noted that in April, the focus was on demand destruction on a historic scale, with little immediate relief expected from the supply side, as the OPEC+ agreement was not due to come into effect until May 1. This was what the IEA Executive Director called ‘Black April’—a month that saw the price of the May WTI futures contract plunge to almost minus $40 a barrel.

The outlook has since improved, with prices starting to rebound, although they are far below where they were before the COVID-19 crisis. This is primarily due to the easing of lockdown measures in some economies and steep production declines in non-OPEC countries alongside the commitments made by OPEC+ agreement.

The gradual relaxation of restrictions on movement with businesses reopening and people returning to work will help boost oil demand. As a result, the 2020 demand forecast, which was set at a 9.3 Mb/d decline for April, has improved to 8.6 Mb/d decline in May.

Stanbic 728 x 90

(READ MORE: Oando Plc to cut down on CAPEX, operating expenses following oil price crash)

There are massive cuts in output from countries like the US and Canada, who are outside the OPEC+ agreement. With the OPEC+ agreement coming into effect, it is estimated that there will be a 12 Mb/d reduction in global oil supply, month on month.

So oil production is reacting in a big way to market forces and economic activity beginning a gradual but fragile recovery. However, the major concerns are whether governments can ease lockdown measures without causing a resurgence of COVID-19 outbreaks and whether a high level of compliance with the OPEC+ agreement will be achieved and maintained by all the major parties.

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Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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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.

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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.

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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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