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Commodities

Oil prices suffer worst monthly decline since March

The U.S oil-based contract, the major indicator used for U.S. crude prices, sold at 35.79 per barrel.

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Now that oil is recovering, when will naira recover?

Crude oil traders are presently under immense pressure, as they log in their worst monthly loss since March.

The plunge in prices is coming on fresh restrictions placed on human mobility around Western Europe, in order to limit the spread of COVID-19. Thereby, strengthening concerns that demand would soften.

READ: National Assembly approves Federal Government’s plan to borrow $11 billion in 2021

What we know: The U.S oil-based contract, popularly known as the West Texas Intermediate – the major indicator used for U.S. crude prices, sold at 35.79 per barrel.

  • For the month, the oil contract recorded a drop of 11%, the sharpest decline since March.
  • London-traded oil contract, Brent crude, settled at $37.94 per barrel. Brent registered a monthly loss of 7.4% for October.

READ: Liquefied natural gas outperforms in Q3, shows more upside

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What they are saying

Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, spoke on the geopolitical macros distorting oil prices.

“Fresh worries that politicians worldwide will be pressured to lock down Christmas this year is hitting the oil markets like a ton of bricks.

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READ: Banks lay-off 2,477 staff during lock-down

“We are in the thick of the Covid-19 haze now. Winter is coming to the northern hemisphere, where crowding and social- behavioral patterns could be a frightening source of a seasonality bounce in the COVID-19 curve.

“Indeed, the alarmingly high level of angst in the markets makes it easy for the oil roller coaster to crest rally peaks and head downhill at alarmingly quick speeds.”

READ: FG hires litigation firm, Franklin Wyatt, in legal battle with Eni S.p.A

Bottomline

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Oil traders might continue to see oil prices plummeting going forward. As a distortion in energy demand/supply rebalancing takes into effect amid new restrictions seen in the Northern Hemisphere, market sentiments will be significantly affected.

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Olumide Adesina is a France-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment Trading. Featured Financial Market Analysis for a Fortune Global 500 Company. Member of the Chartered Financial Analyst Society. Follow Olumide on Twitter @tokunboadesina or email [email protected]

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Commodities

Vaccine, Backwardation and OPEC+: Hope for oil?

There is a renewed hope for oil prices as backwardation in the oil markets and OPEC+ production cuts prop up the markets despite COVID-19 cases.

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Saudi, Russia agree to cut oil by 20 million barrel, Further oil production cut required to keep oil price above $40 in 2020 , OPEC + deal to boost Nigeria’s earnings by $2.8 Billion

Oil prices finished higher on Wednesday, with help attached to progress made on vaccines for COVID-19.

There is also renewed hope for oil prices as backwardation in the oil markets and OPEC+ production cuts prop up the markets despite the coronavirus cases that keep rising worldwide.

Brent oil rose to as high as $48.90. Also, West Texas Intermediate rose as high as $46.20 a barrel on the New York Mercantile Exchange.

Optimism around vaccine developments continues to buoy sentiment, despite the current lockdowns that we are seeing across Europe, and with the numbers of U.S. COVID-19 cases now passing the 12 million mark,” said Warren Patterson, Head of Commodities Strategy at ING.

READ: Mike Adenuga: The journey from petty trade to Conoil and Glo

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This rise in Oil, moved prices to their highest price since March, after AstraZeneca also declared a great update to the advancement of its COVID-19 vaccine.

The drugmaker in a joint effort with the University of Oxford – said its vaccine was 70% powerful at preventing COVID-19 in a preliminary trial of about 20,000 volunteers.

AstraZeneca’s vaccine progress denotes the third sure vaccine from organizations after Moderna inc., Pfizer and BioNTech, are hurrying to put up a reasonable drug for sale to the public.

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In any case, possibilities for an immunization are needed ahead of a potential third wave of the COVID-19 virus. The US recorded more COVID-19 cases this week as indicated by the COVID Tracking Project.

READ: Investment bank with over $35 billion assets plans investing in bitcoin

Backwardation

Another reason why prices are rising is because of what traders call Backwardation. Oil prices are historically bullish when backwardation occurs in the markets. It is a situation where traders no longer have an incentive to store oil and sell it later.

Right now, they are selling it because prices could be lower in the future. The demand from Asia also makes the market feel balanced now.

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When the current price of oil is higher than prices trading in the futures market, traders sell live barrels and buy oil futures contracts, which leads to a convergence of both prices.

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This can occur because of a higher demand for oil than the contract in the futures market. Traders use backwardation to make a profit, by selling short at the current price and buy at the lower futures price.

OPEC+

To bring support to prices, OPEC+ and partners including Russia will expand the span of their production cuts when they meet soon, to balance frail demand over the winter months.

Recall, OPEC+ cut production in April, as oil demand imploded during lockdowns. Though there were talks about returning about 2m barrels a day of production to the market in January 2021, there is a strong possibility that they will postpone the return of these barrels.

READ: CBN launches Private Sector-led Accelerated Agriculture Development Scheme

Goldman said it expects OPEC+ to delay its planned 2 million bpd January production ramp-up for three months, citing coordinated measures to curtail output as “the optimal near-term action,” according to their experts.

There was a lot of purchasing demand, which has pushed prices to this level. This was overshadowed, as there is a worry over worldwide demand, as COVID-19 flare-up proceed far and wide. Prices were likewise increased by information demonstrating a bounce back in China, Japan and other Asian buyers.

The gathering, known as OPEC+, has been cutting production by about 7.7 million barrels every day (bpd), with compliance seen at 96% in October, and had wanted to maintain cuts by 2 million bpd from January.

OPEC+ is set to hold a meeting on Tuesday that could prescribe changes to production cuts when all the members meet on Nov. 30 and Dec. 1.

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READ: Gold prices under pressure, U.S dollar ticks up

There is no denying that the oil market is fully in the hands of OPEC+,” said Bjarne Schieldrop.

The organisation is the only reason why oil prices today are not $20 a barrel. As such, their upcoming meeting on Nov 30-Dec 1 is hugely important.

Nigeria, however, wants to increase production and their quota as the revenue of the country dwindles with foreign currencies getting scarcer.

The more production means Nigeria would be able to make more oil sales. Hopefully, the meeting would give more room for Nigeria to increase its quota.

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Commodities

Oil prices up, energy demand up

Brent oil futures gained 0.51% to trade at $48.86/barrel and the West Texas Intermediate futures ticked up by 0.46% to trade at $45.92/barrel.

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Five oil majors reduce value of their assets by $50 billion in Q2

Crude oil prices continued their bullish trend at London’s trading session on Thursday morning. Oil traders are going long, as recent data from the world’s largest economy reveals a surprise draw in U.S. crude oil stockpiles, coupled with high buying interest from Asia, strengthened the resolve of oil traders to go long.

READ: FG says recent petrol price increase linked to Pfizer Covid-19 vaccine success

  • At about 6.15 GMT, Brent oil futures gained 0.51% to $48.86/barrel.
  • West Texas Intermediate futures ticked up by 0.46% to trade at $45.92/barrel.
  • Data from the EIA revealed a plunge of 754,000 barrels for the week to November 20.
  • However, Gasoline stocks gained 2.2 million barrels in the week to 230.2 million barrels, the Energy Information Administration said.

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

What they are saying

In an explanatory note to Nairametrics, Stephen Innes, Chief Global Market Strategist at Axi, gave deep insights on key fundamentals pushing oil prices up amid a COVID-19 era.

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“Oil traded higher on Wednesday in a very tight range until the rally midday in New York. WTI attempted a clean push through $46, and Brent printed through $49 before retracing some.

READ: Nigeria’s 5,000 BPD refinery will produce 271 million liters of petrol every year

The inventory numbers released earlier in the NY session helped push the market higher, with the EIA figures more bullish than the previous days’ API estimates and bullish to consensus.”

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He also elaborated on the buying interest seen lately from the Asian economic juggernauts, China and India, which is giving oil bulls enough gas in roaring hard, “Asia’s unquenching demand remains for all to see. Chinese and Indian buying interest continues with tenders issued for both spot and term cargoes, directly responsible for increased demand and reflected in the Brent curve, which has moved to a mild backwardation this week.”

READ: How Cash flow, Liquidity, and Leverage impacts your financial plans

Bottom line

The colossal moves prevailing in the crude oil market over the past two days echo optimism amid positive vaccine development. The flattening of the curve suggests that a positive surprise on current demand is also being reflected.

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Commodities

Gold prices tumble, hit lowest level since July

Gold bulls are presently nursing their wounds amid the sharp drop seen lately in gold prices

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Gold bulls are presently nursing their wounds amid the sharp drop seen lately in gold prices. At Tuesday’s trading session, the yellow metal dropped through the $1,800 mark for the first time since July.

What we know: At the time of writing, Gold futures were down 0.16% to trade at $1,801.75/ounce after losing over 35 dollars on Tuesday alone amid a strong appetite for risk among global investors on COVID-19 vaccine turned them away from safe-haven assets.

READ: Nigerian billionaire, Benedict Peters Plans to mine Platinium in Zimbabwe

Adding to the current wave of optimism is the official approval given to the U.S. presidential transition process given by Emily Murphy, director of the General Services Administration.

In an explanatory note to Nairametrics, Stephen Innes Chief Global Market Strategist at Axi spoke on the macros giving gold bears such resolve in taking the price bandwagon down to its lowest level since July;

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READ: Investors pump N7 billions into New Gold ETF

“The improved expectation for material vaccine deployment in 2021 has likely closed the door on the gold upside. And given the heft of ETF positions, especially the massive accumulation since the beginning of this year, there is definite scope for a deluge of ETF unwinds. So, look for a massive clear out again on a break of the psychological $1800.

“Gold fell and hit its lowest level since July. It is much of the same – transfer of ownership continues into stable allocation – with no huge clips dealing with Asian banks providing the offer during Shanghai Gold Exchange hours.

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READ: Why Nigerians Should Invest in Foreign Exchange Traded Funds

“Gold rout continues as investors embrace vaccine news. The break of USD1,800/oz support may take prices near USD1,750/oz as surging investor optimism due to promising COVID-19 vaccines has undermined gold and silver.”

What to expect: The precious metal will continue to be under immense pressure from the gold bears taking into account the commanding macro theme related to a vaccine recovery and the reduced risks associated with central bank debt monetization or the pursuit of quasi-modern monetary theory.

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