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Opinion: Oil prices will reach $50/barrel at the end of 2020

Oil prices can defy all odds going by these assumptions.

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Crude oil prices rebound ease investors’ concerns for Nigeria debt market, How substantial is compliance for the Oil market?, Crude Oil price soars high on new COVID-19 vaccine

During the Nairametrics Economic Outlook webinar in May 2020, I took a buy option that Oil prices would hit the $50 mark by the end of 2020. It was a huge gamble to take but thinking through the question in a matter of seconds, my intuitions led me to the buy option.

Many will wonder what crystal ball I must have looked at when I decided to make a buy option at the webinar, well my take on that will be the crystal ball of my intuitions. The world order has many times seen the oil prices starting to rise more as the winter season starts getting to spring and many of the world’s production economies gear up for the peak of production and supply chain distribution during the summer.

As summer tends to reach it’s peak towards the end of July into August, seemingly, oil prices take a slight a plunge to adjust for the effects of the last part of the summer holidays into fall where another sizeable round of production kicks off to meet the demands of the winter period which is filled with several celebratory holidays such as the American Thanksgiving, Christmas, the beginning of a new year and many of the Asian holiday celebrations such as the Chinese new year.

READ MORE: World Bank approves $750 million loan to Nigeria for power sector

That trend was similar at the end of 2019 and we were all preparing for the growth of the world economy which had been predicted to grow at 3.3%. With the start of a major outbreak of COVID-19 during the Chinese New Year in January, the disruption of the world economy began not many believed that the impact would be far more detrimental to the world in terms of production and supply chain management. The effect of this and many other incidents like the Saudi Arabia and Russia oil war sparked the biggest downward trend of Oil prices which at one time was predicted to hit rock bottom at below $10/barrel as it happened in the early 1980s.

Two major challenges were greatly responsible for this downward spiral which I believe if responsibly managed in the second half of the year would lead oil prices heading in Northern direction and probably reaching my predicted price of at least $50/barrel by the end of the year.

1. The surge in the cases of COVID-19 hospitalization which disrupted the health care system and invariably the economic modalities of many countries.

2. United States of America’s reactions to the global health pandemic which led to not having a united front for dealing with the pandemic.

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READ ALSO: Digital technology, innovation aid €127m agriculture revenue 

As can be seen, the oil price averages have started moving the Northern direction again following its lowest average of $18/barrel in April, when the whole world was fully shut down in order to manage the health care crisis. In May, it averaged $29/barrel and it is looking at averaging out to $40/barrel at the end of June. This trend I believe will continue because more economies are beginning to open up slowly and the worlds production and supply chain management systems which for me are great determinant for the oil market are beginning to get back to a bit of normal.

However, there are a few boxes that must be checked in order to ensure that this trend will continue. For this, I have identified three boxes.

1. How the world manages a potential next wave of an upsurge of COVID-19. I believe that Europe and Asia are the most prepared for this, with parts of North America (excluding the United States of America), South America and Africa too.

2. The increased opening of the world’s economies to trade and movement which would begin to become fairly functional towards the last parts of the third quarter of the year. However, I fear that the United States of America would lose out on this if they do not address the first box more adequately.

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READ ALSO: COVID-19 could impoverish additional 5 million Nigerians – World Bank  

3. The outcome of the world’s most-watched and anticipated democratic election. The November 3, Presidential elections.

The outcome of the November 3, US presidential elections, will play a huge and fundamental role in the way the outcomes of the first two boxes will play out. If there is a return of the incumbent, I see Europe, Asia and the rest of the world build their own reserves towards self-reliance and the continued economic wars would only lead to more chaos for the Oil markets.

The increased numbers of COVID-19 challenges in America for box one could lead to more difficulties in opening economies to deal with America and the movement of Americans. Thereby increasing trade tensions and invariably leading to America flooding the supply of the Oil market to push prices down.

READ ALSO: How COVID-19 has changed Nigeria’s consumer goods & industrial markets –KPMG

A change in the realms of power to a new government, could lead to some form of stability between the traditional allies and even adversaries as the world would come together to manage the challenges of box one, leading increased and better managed economies being opened and invariably a more stable oil market to help manage the economic challenges of a health and safety issue thereby improving production and supply chain management systems and finally Oil markets driving the oil prices further North to reach the projected $50/barrel at the end of 2020.

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Finally looking at my crystal ball of intuitions, I see better-managed world economy by the end of 2020 and oil process above the $50/barrel and a more restructured world economy in 2021 with the various applications of the NEW NORMAL.


Uade Ahime is a chartered accountant and corporate governance implementation expert. He has over 25 years working experience in oil and gas downstream and upstream, banking and consulting. Uade is also a member of the Nairametrics Editorial Board.

www.uadeahimie.com.ng

 

 

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Columnists

The role of healthy communication in the workplace

To foster a healthy work environment, employers should take communication more seriously.

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Networking, way to success in Nigeria

Profit is the purpose of every business organization. The best way to sustain profit is to strengthen the “Employer-Employee” relationship and the “Buyer-Seller” relationship. The profit of every business organization depends on these two. The success and failure of every business organization also depends on these two.

Communication is one of the major concerns in an organization and it is very necessary in our workspace and among people around us. Constant communication helps to build a strong connection in the relationship between an employer and an employee. It is crucial to the growth and success of your business and it allows everyone to provide input and feel that their ideas are valued.

Everyone can communicate as long as it is with words. In an organization, both the employer and the employees should develop good communication skills.

Your employees are part of the vision of your company and their opinions and innovations should be considered. This will go a long way in building a positive workplace culture.

Communication can be in oral or written form; and while written communication is the preferred form of communication in organisations, oral communication should neither be limited or downplayed. As an employer, your employees should be able to communicate freely with you. Communication reminds your employees about the goals of your company and helps you to delegate responsibilities effectively.

According to research, 57% of employees report not being given clear directions. A survey of 400 companies with 100,000 employees cited an average loss of $62.4 million per annum because of inadequate communication between the employer and the employees.

It is the responsibility of an employer to communicate the organisation’s vision, mission, goals and objectives to employees. Goals must also S.M.A.R.T (Specific, Measurable, Achievable, Realistic and Timely). Where communication is absent or ineffectively handled, employees can become unproductive, unresourceful, demotivated, and disorganised. There may also be high employee turnover which ultimately affects the profitability of the business. Without effective communication, an organisation will most likely be unable to retain its star performers or motivate average-performing employees into becoming highflyers.

Communication in organisations should not be left only to the Human Resources department, but feedback should also be encouraged from employees. Where there is a gap in communication, employees are left with no choice but to fill these gaps with rumours, (wrong) assumptions, gossip and the spread of misinformation. This creates an unhealthy work environment that is detrimental to the business.

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To foster a healthy work environment, employers should take communication more seriously. They should not only learn the art of effective communication but should also encourage and be receptive to feedback from their employees.

 

 

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Why NNPC’s Borno power plant may not materialise 

The glaring security challenge cannot be overlooked in considering a major power plant project in Borno State.

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Only a few days ago, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, led a delegation to Borno State to meet with the Governor of the State, Babagana Zulum.

In the conversation with Zulum, Kyari promised the establishment of a gas-fired power plant in Borno State within a maximum of 4 months to solve the recent blackouts that resulted from insurgents cutting off Borno from the national grid since January this year.

In Kyari’s words, “We have talked to each other and we think it’s very possible to establish a dedicated power plant in Maiduguri which will serve current needs of power supply not only in Maiduguri but to other parts of the neighbouring cities.”

READ: NNPC GMD says AKK pipeline, Nigeria’s biggest gas project is 15% complete

Yet, there is a significant possibility that the power plant promised by Kyari may not materialize for many reasons, the first of which is security. In the meeting with Kyari, Governor Zulum had noted: “The ongoing insurgency has cut off the entire Borno from the national grid in the last three months. We put all our efforts and restored it back… but unfortunately, after 48 hours, the same group of insurgents went back and destroyed the main tower again.”

This glaring security challenge cannot be overlooked in considering a major power plant project in Borno State, particularly noting that the State and its surrounding communities have been the hot zone of insurgent and terrorist attacks by Boko Haram insurgents since 2009. Borno, Yobe and Adamawa have particularly been states where the insurgents have set up shop and carried out various activities, including kidnap, extermination of entire communities, burning of markets and religious buildings and the attack on the United Nations compound, in each case claiming tens or hundreds of innocent lives.

READ: Analysis: NNPC and its refining losses

One report reveals that at least 37, 500 people have been killed by the insurgent group since May 2011, a modest number, some say. Also, till date, some of the secondary school girls kidnapped in the April 2014 Chibok incident are yet to be returned to their families. It is then bewildering how Kyari intends to see to the construction and operationalizing of this gas power plant.

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Additionally, while the Minister of Petroleum for State, Chief Timipre Sylva, announced last year about the discovery of oil and gas deposits in the North, we have not seen any exploration and production kick-off. It then begs the question of where the gas for the Borno power plant intends to be sourced. The only gas pipeline that runs through the North – the AKK- is still in its first phase of construction out of three phases and has been earmarked at the earliest, to be completed in 2023 – not counting the typical delays the project will experience along the way.

READ: NNPC, only Nigerian company to cut losses by N800 billion in one financial year – GMD

Should the AKK by some stroke of luck materialize much earlier than the target date, the pipeline route is a considerable distance from Borno. It runs the route of Ajaokuta-Abuja-Katsina-Kano, its endpoint, a striking 481km from Borno State. Thus, there would have to be construction of a tie-in pipeline almost as long as the AKK from Kano to Borno State to get gas to Borno.

Optimists may reference the oil and gas discovery in the North and how production may start soon, thus obliterating the need for a 481km pipeline. This optimism however is not well-founded, as insecurity has been shown to be a major risk to oil and gas projects everywhere in the world. One of the major reasons the Trans-Saharan Gas Pipeline proposed to run from Nigeria to Algeria was abandoned was due to security challenges posed by Nigeria’s Movement for the Emancipation of the Niger Delta (MEND), the Tuareg guerilla movement in Niger and other insurgent groups along the proposed route of the pipeline.

READ: Why NNPC should be commercialised

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These increased the risks across board, including for completion and operations through the lifecycle of the project. As such, failing to fix the security threats in northeast Nigeria makes any proposed gas plant project a pipe dream. Transporting gas via LNG trucks is not a better option, given that the drivers and their cargoes would be in danger of being kidnapped, shot at or bombed. The risks for both personnel and investors are high.

In any event, promising a power plant in 4 months for the people of Borno is unconscionable, since a typical gas power plant will take between 1 to 6 years to construct in relatively peaceful regions. What the government needs to do instead of making promises it cannot keep is to work arduously to fix the security challenges in Northern Nigeria and at the same time consider using decentralised solar power to provide power supply to homes, government institutions, schools and businesses while plans to produce gas in the region or transport gas to it are underway.

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