Oil prices have risen by 128% from it’s April low as it has steadied above $40 a barrel since mid- June. At the same time, fluctuating demand and rising supply present a bottleneck for those who are expecting oil prices to keep climbing. Reduction of the size of output cuts to 7.7million barrels a day from August, by the group of 23 oil-producing countries which is led by Saudi Arabia and Russia would add about 2 million barrels to the daily oil production levels. Most of the extra OPEC+ crude would not reach the global market. These extra cuts would be used to service internal demand for electricity to run air conditioners as a result of the scorching temperatures across the Arabian Peninsula. Fewer citizens have been travelling to Europe to avoid the scorching temperatures.
Rising supply is not the only thing that will put pressure on crude prices. The anticipation for recovery in demand for oil is also running into problems. At a period when crude prices were at the lowest point in April, China made a record purchasing splurge and subsequently, China’s oil buying decreased. The amount of oil kept in Shandong province haulers and refineries has risen by 28% since mid-May and close to hitting a five-month high. However, there is still an enormous pile-up of vessels that are waiting off the seashores to offload their freights. Some of them have been there for two months.
Temporarily, China’s independent refineries started to decrease their processing rate from record levels in mid-June and massive glut across the country may reduce its demand for gasoline and oil by almost 5%, whilst the decline should be temporary.
Vacation States, like Florida and California, are seeing a rise in COVID-19 cases, with a record number of daily infections and increased death tolls. This has caused travel restrictions and also, ruining demand for both gasoline and jet fuel. The recovery in US gasoline demand stalled shortly after the driving summer season got underway. Crude is being squeezed between rising supply and a stagnating demand recovery, which is going to make the oil bulls uncomfortable. It is plausible supply could overload storage facilities, pipelines and refineries, creating little room for domestic production of oil.
In the past few months, Saudi Arabia, Russia and most OPEC members complied to slashing production. On the other hand, American oil companies are decommissioning rigs and shutting Wells. These developments helped push oil prices remarkably. Oil prices may fall again if there is another surge in Coronavirus cases and death as governments begin allowing businesses to reopen and people might see that as carte blanche to move about more freely.
The US oil companies have started producing oil from the wells they abandoned when the prices sank, after the restoration of wells that were shut earlier this year. There are chances that prices could also fall when haulers filled with more than 50million barrels of crude oil from Saudi Arabia, reach the US in July ending. US oil companies have increased production by 1.2million barrels a day in the past six weeks. Output went as low as 9.7million barrels a day in the second week of June but has risen to 10.9million barrels a day as activity begin to recuperate in the big shale fields on Texas. US production will now balance at about 11million barrels a day through to the end of 2020 which is well below the 13million barrels a day in March before the Saudi-Russian price war and Coronavirus pandemic devastated the US oil prices.
Oil supply feared to drop by 3%, as new cases of COVID-19 infections increase
Growing concern that oil supply could fall by 3% continues as a result of increasing cases of COVID-19 in the US and Europe.
There is a growing concern that oil supply will fall by 3%, escalating last week’s losses as a result of growing cases of COVID-19 in the United States and Europe.
This has raised worries about the market conditions – the demand and supply of crude oil. The United States reported its highest number of new coronavirus infections in two days – Saturday inclusive, while in France, new cases hit a record of more than 50,000 on Sunday, underlining the severity of the outbreak.
On the supply side, Libya’s National Oil Corp on Friday ended its force majeure on exports from two key ports and said production would reach 1 million barrels per day (bpd) in four weeks, a quicker ramp-up than many analysts had predicted.
OPEC+, a grouping of producers including the Organization of the Petroleum Exporting Countries (OPEC) and Russia, is also set to increase output by 2 million bpd in January 2021, after cutting production by a record amount earlier this year.
What you should know
Recently, Nairametrics reported that the oil prices had continued to decline as a result of worsening COVID-19 pandemic cases which are threatening to bring more restrictions on movement and consumption and ultimately hit demand for crude products.
What they are saying
According to Avtar Sandu, Senior Manager of Commodities at Phillip Futures in Singapore, “New barrels of Libyan oil come at a time when the crude oil market had just faced the disappointment from the recently concluded OPEC+ ministerial panel, when the organization made no new policy proposals.”
Last week, Russian President, Vladimir Putin, indicated he may have to agree to extend OPEC+ oil production reductions if that could be beneficial in stabilizing the market.
Crude oil prices close lower W/W, oil traders wary
Both oil contracts suffered heavy losses as reports from U.S oil rig count gained up to 211 from last week’s level of 205.
Crude oil prices ended W/W on a bearish note. The slide is significantly attributed to the soft demand in gasoline, as COVID-19 restrictions in certain emerged markets began to take its toll on crude oil demand.
- New York-traded West Texas Intermediate futures settled at $39.85 per barrel. For the week, West Texas Intermediate dropped 2.5%.
- Not forgetting the British traded oil contract, Brent crude settled at $41.77.
- Both oil contracts suffered heavy losses as reports from U.S oil rig count gained up to 211 from last week’s level of 205.
- Oil rigs, indicators of future production have steadily climbed since the week ended Sept 4, when they stood at 180.
Adding to the weight on the market were estimates that Libyan oil output, mostly offline since January, had risen to 500,000 barrels per day and will likely grow further by October end.
In an explanatory note to Nairametrics, Stephen Innes, Chief Global Market Strategist at Axi, gave key insights on moves made by OPEC+ to keep pricing in check, as the virus negatively affects the fragile energy market.
“One would have to assume OPEC+ decision will depend on the price/curve shape outcome for November. Traders remain unwavering that OPEC will continue to defend the downside for oil prices via a more calibrated monthly market evaluation and inventory management approach.
“OPEC hopes to tighten near-term balances push spot prices higher than ‘forward prices’, the elusive backwardation, encouraging inventory draws.
“My view is until this unambiguously occurs, OPEC will cover the markets back. Positively for OPEC compliance concerns, all the push pump-happy members appear to follow the compensation principles.”
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What to expect
In the days ahead, crude oil prices are expected to be range-bound, as oil traders are now focusing on the most important election coming up in the world’s largest economy in about two weeks’ time. That said, crude oil prices will continue to be influenced by the outcome of the newly registered COVID-19 vaccine.
Nigeria’s $1.5 billion steel plant set to produce 1 million MT of steel annually
Nigeria nears steel independence as $1.5 billion steel plant in Kaduna is set to produce 1 million MT of steel annually.
The Federal government of Nigeria has disclosed that it is expecting an annual output of one million metric tonnes of steel from its $1.5 billion steel plant in Kaduna.
This was disclosed by the Minister of Finance, Budget and National Planning, Mrs Zainab Shamsuna Ahmed while inspecting the steel plant facility at the African Natural Resouces and Mines Limited in Kaduna.
According to The Punch, Mrs Zainab Ahmed during the inspection of the facility said that the $1.5 billion steel plant which is now nearing completion, would produce one million metric tonnes of steel annually. She emphasized that the facility is critical to the nation as it is tactical to the looming steel revolution in Nigeria.
What you should know
The $1.5 billion steel plant built by African Resources and Mines Limited, a subsidiary of African Industries Group (AIG) is at an advanced stage of completion.
The plant which is billed to commence the first phase of production in the mining of Iron ore, and production of Direct Reduced Iron in a matter of months is expected to produce one million metric tonnes of steel annually.
(READ MORE:FG to provide support to Aviation investors)
Why this matters
This development is expected to resuscitate Nigeria’s steel industry which has been lifeless for a while, and help put an end to the importation of steel in Nigeria. This will also reduce the pressure on the Nation’s foreign reserve, and bolster the foreign reserve of the country.
It is expected to boost domestic steel production and attract foreign investors’ participation in the industry, especially auto producers around the world.
However, the facility will create employment opportunities for Nigerians both directly and directly and indirectly.
What they are saying
Alok Gupta, the Group Managing Director of AIG, said the firm would be mining iron ore to produce direct reduced iron, which would enable the company to produce higher-grade steel more efficiently.
He explained that the investment by the company in the Nation’s steel industry will dramatically increase domestic production, and this will have multiple effects on the Nigerian economy.
The Minister of Finance emphasized that the recent investment in the steel industry by AIG which is about to yield gains both for the company and the economy will attract the auto industries of the world to come into Nigeria and produce cars in Nigeria for Nigerians, and other countries in West Africa.
The investment of AIG in the steel industry is expected to drive the country towards steel independence, and pave the way for Nigeria’s steel revolution and the development of the automobile industry in the nation.
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