Business News
Now that Oil is back
Oil Is Back after Donald Trump tactfully negotiated one of the most important diplomatic deals with Saudi and Russia
“Oil (Energy) is back!!!”. These were the words of Donald Trump, who appears desperate for the United States’ energy industry to jump-start after being hit by one of the worst pandemics in history. His reaction to the oil price rally would have been similarly expressed by other World leaders, whose economies rely on the black gold for a fair portion of revenue. The rally would buoy countries such as Nigeria that has suffered from the oil price crash witnessed in the previous month. It would be a disservice not to apportion credit to Trump after he tactfully negotiated one of the most important diplomatic deals with Saudi and Russia to head back to the OPEC+ cuts discussion table. Little wonder what Oil prices would be without his intervention and the consequent OPEC+ cuts.
Brent Oil traded at the $34-$35 range at the early hours of the Asian Session on Wednesday as traders weighed on output cuts agreed by OPEC+ and their implementation, decline in U.S. production and a recovery in demand in China and India. Last week, Mohammed Barkindo, OPEC Secretary-General, commended on the compliance levels by participating countries while he was interviewed by Bloomberg last week. His claims were further corroborated by the Head of Commodities Research at Citigroup Inc. Ed Morse said, “The actual production cuts are deeper and more spectacular than any reasonable person would have thought a week ago.”
Another factor that gave the bulls momentum were indications of oil demand back to pre-pandemic levels in China. In a report by Bloomberg, insider knowledge monitoring the country’s consumption claimed that almost 13 million barrels a day is being consumed, which is not far off May and December 2019 levels of 13.4 million barrels and 13.7 million barrels respectively. The report also affirms that the only thing pegging back the numbers going higher is the dearth of demand for jet-fuel. The dossier reveals that traffic congestion levels are increasing due to commuters preferring private vehicles than public buses for social distancing reasons.
In other bullish news, the American Petroleum Institute (API) on Tuesday surprised speculators and analysts with an estimated decline of 4.8 million barrels in U.S. crude supplies for the week ended May 15. This improved prices as a decline in supply provided support for higher oil prices.
(READ MORE: Crude oil prices drop over fears of virus ressurgence)
While most analysts believe the worst for Oil is over, some energy research companies believe the euphoria over higher prices might be short-lived. Rystad Energy cautioned that despite the lifting of lockdowns, there is nothing to indicate that the pandemic would be over soon, or that oil producers will consistently comply with shut-ins. “There is significant downside risk related to two events, the resurgence in COVID-19 outbreaks, and deteriorating compliance to OPEC+ cuts as demand comes back”. Economic outlooks for most countries still look bleak, as acknowledged by Federal Reserve Chairman Jerome Powell that it may take till the end of 2021 and a Covid-19 vaccine for the U.S. economy to recover. The U.K. economy seems to be staring at a “significant recession” according to fears from Rishi Sunak, the nation’s chancellor.
The chart above shows the current oil price level and how far prices have recovered and how far it must go to reach pre-pandemic levels. Is this rally sustainable? Will a second wave of the virus affect the momentum? These are the questions we begin to ask for Oil dependent countries and companies that need high prices to augment their economic fortunes. The Oil bulls have everything working in their favor in the short term. Higher oil prices have a checklist featuring a revival in demand from China, accompanied by production shut-ins, supply declines, and ease in lockdowns in most countries with previous concerns about storage facilities evaporating.
For now, it is safe to say Oil s Back…and so am I.
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Business News
Cost of building materials rise by over 60% in one year
The price of building materials in the market experienced a rise of over 60% in the last one year.
The cost of Cement, Steel, Tiles and Plaster of Paris (PoP) cement, among others have risen by over 60% between March 2020 and March 2021.
For instance, the cost of steel, which was sold at N234,000 per tonne as of March 2020, had increased to N380,000 at the end of March 2021. This represents a 62% increase within the period under review.
While Dangote Cement increased from N2,600 to N3,800 (though it is sold at N3,600 in some areas in Lagos), Lafarge Cement and BUA Cement increased from N2,400 and N2,250 to N3,600 and N3,250 respectively within the same period.
The price hikes are not limited to the cost of steel and cement alone but also to other materials like Tiles, PoP cement, and roofing sheets.
The cost of super white cement increased from N2,500 (25kg) to N3,700, and the cost of high-quality white cement (40kg) also increased from N4,000 to N6,500.
The cost of gravel increased from N80,000 to N140,000; that of 8mm diameter and 25mm diameter (imported) increased from N234,000 and N245,000 to N330,000 and N380,000 respectively.
Doors are not left out in the hike. Costs of Flush door (high quality), Panel door and Turkish steel door (1,500 x 2,100) also rose from N35,000, N40,000, N165,000 to N60,000, N75,000 and N235,000 respectively.
Why the hike?
Industry experts have attributed the hike to persistent depreciation of the naira and the rising cost of other building materials.
Tunde Oluwole, a fellow of the Nigerian Institute of Builders, explained that the development was caused by high interest rate, inflation, increasing exchange rate and scarcity of forex in the country.
He said, “The increasing prices in Nigeria is a result of the combined effects of high-interest rates, devaluation of the naira, inflation, and non-effective distribution network of the materials.”
To Kolawole Adebisi, an Estate Developer, the development in the cement industry is caused by the ban of imported cement in the country.
He told Nairametrics that he is not against the ban, as the government’s intention is to boost local production of cement but explained that “the local manufacturers were unable to produce enough cement to meet the demand and this contributed to the rising cost of the product.”
