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Commodities

Falling Oil prices: Nigeria’s Halloween reality

The majority of Nigerian oil buyers are in Europe and with imminent lockdowns, could face a potential scenario where oil revenue would decline.

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Last week, Brent oil suffered a 10.3% loss and was down 8.5% in October as COVID-19 cases keep soaring. Demand is getting crushed and consumption would soon follow, as major countries in Europe begin lockdown. The majority of Nigerian oil buyers are in Europe and with imminent lockdowns, we might face a potential scenario where oil revenue would decline.

With oil demand in Europe being affected, global oil inventories are falling at a rate of around 2 million barrels a day in September and October and that decline will probably continue, according to Mike Muller, the Head of Asia for Vitol Group.

“We are seeing demand destruction unexpectedly from these lockdown measures – hundreds of thousands of barrels-per-day-equivalent for Europe alone,” he said. “But the bigger, overriding picture is still that the world is in a stock-drawing mode.”

The forthcoming United States election poses another threat to Nigeria’s oil fortunes. A win for Trump might leave things unchanged, although the ever-growing presence of the shale industry which currently suffers from poor profit margins and capital expenditure could affect Nigeria.

On the other hand, a win for Joe Biden might signal the decline of the American Oil industry. Although, this might be offset by the return of Iranian oil, as Joe Biden’s diplomatic relations with Iran might remove sanctions imposed by Donald Trump.

 

Additionally, the United States set another Covid-19 record last week Friday, as they recorded more than 100,000 cases. These statistics bring the total number of coronavirus cases in the United States (one of the largest consumers of oil) to 9 million cases.

Speaking of large consumers, Nigeria has hope in the improvement of demand from China and one of Nigeria’s frequent oil buyers, India. There have been reports that both nations have had economic activity pick up and this might be the only bullish signal for oil.

In contrast, the oil bears have all the necessary impetus to bring prices down. After prices had already hit the June low, there is a possibility that prices might target another support level. The catalysts to drive this include the buildup up of Crude draw in the U.S (one of the largest oil producers), as reported by the E.I.A last week.

Secondly, the imminent lockdowns in Europe and the rapid rise of coronavirus cases which signal the destruction of demand would give the bears more drive. In addition, the bears will be motivated by the uncertainty of the outcomes of the United States election, which signals a delay in the stimulus bill (which has provided oil markets support for the past few months).

Nigeria would need her allies in OPEC+ to push forward their meeting, originally slated for the ending of November/start of December. The bears have all the time to cause carnage in the oil markets and OPEC+ cannot afford to watch prices run down before the meeting.

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The return of Libyan oil, which reports suggest is building momentum, poses another headache for Oil bulls. Libya is an OPEC+ member and home to Africa’s largest crude reserves. But it’s exempt from the group’s supply cuts initiated in May as the coronavirus pandemic stifled economies caused oil prices to tank.

With potential shortages in oil revenue coming, FX liquidity would remain as it is. Scary as it sounds, this might go on till 2021, as all the vaccine talk seems to have gone out the window. It just seems that Nigeria and Nigerians might be in for a longer Halloween.

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Dapo-Thomas Opeoluwa is a Global Markets analyst and an Energy trader. He is currently an MSc. Student in International Business, Banking and Finance at the University of Dundee and holds a B.Sc in Economics from Redeemers University. As an Oil Analyst at Nairametrics, he focuses mostly on the energy sector, fundamentals for oil prices and analysis behind every market move. Opeoluwa is also experienced in the areas of politics, business consultancy, and the financial marketplace.You may contact him via his email- [email protected]

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Commodities

Gold breaks below $1,800 per ounce, amid rising U.S Treasury yields

At the time of writing this report, the blinky metal at the futures market was trading at $1,796.40 per ounce.

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gold, Gold fast losing the battle to Bitcoin

Gold drifted below the $1,800 price level at the fourth trading session of the week due to higher U.S. Treasury yields. Also, U.S. Federal Reserve Chairman, Jerome Powell, maintained that the current ultra-easy monetary policy paused buying pressure on the yellow metal’s appeal.

At the time of writing this report, the blinky metal at the futures market was trading at $1,796.40 per ounce.

What you need to know: Usually, higher inflation boosts the price of the precious metal in principle, but also helps U.S Treasury yields (gold’s arch-enemy), which in turn helps the opportunity cost of holding the safe haven shinny asset.

The U.S Fed Chief recommitted to getting the world’s largest economy back to full employment during his testimony before the House Financial Services Committee.

He tried calming fears about inflation in the $20 trillion powered economy, emphasizing that he would only start worrying about it if prices began to rise in an aggressive and troubling way.

Benchmark U.S. Treasury yields are currently at the highest levels in a year.

Stephen Innes, Chief Global Market Strategist at Axi, gave further insights on the political macro condition that could determine the precious metal’s future, at least for the midterm, knowing fully well that gold is priced in the U.S dollar.

“Gold broke below USD1,800/oz. Such a break below that level this month has done some psychological damage to the market, I believe.

“On the political side, President Biden’s incentives look fully aligned with getting the US economy and populations as healthy as possible ahead of the 2022 mid-term elections.

“If both fiscal and monetary policy makes maximum efforts into a post-pandemic recovery, then at the very least we will get temporary inflation along with plenty of debate whether it might become more permanent.

Bottom Line
Gold traders are not keen on going bullish, at least for the near term, on the bias that rising U.S Treasury yields see investors showing less interest in the yellow metal.

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Commodities

Oil prices drop as gasoline demand from U.S refineries remain poor

Oil prices suffered significant losses at the mid-week trading session in London.

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global oil market, Bonny Light and Brent crude oil, Arthur Eze, Nigeria cuts crude oil production to 1.77mbpd, Nigeria wants international oil companies to pay up now , OPEC+ deal gets a boost as Russia and Saudi Arabia consider further output cut, 4 key reasons why Brent crude might slip back to $35 per barrel, How substantial is compliance for the Oil market?

Oil prices suffered significant losses at the mid-week trading session in London. Oil traders are virtually going short on macros revealing an unexpected build in U.S. crude inventories.

The surge in U.S oil inventories was attributable to the unprecedented cold snap that hit a key energy hub in the world’s largest economy during the previous week thereby pausing gasoline demand from refineries that were forced to close down.

At the time of writing this report, Brent crude was down 0.60% hovering around the $64 per barrel.

READ: Oil prices fall under pressure over rising number of COVID-19 cases in China

However, both major oil benchmarks remained above the $60 price levels.

The most recent data from the American Petroleum Institute revealed a surge of 1.026 million barrels for the week ending Febuary.19. Oil experts had earlier anticipated a 5.372-million-barrel drop.

Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics spoke on prevailing market conditions weighing on the black hydrocarbon

READ: Gold traders go wary over rising U.S. Treasury yields

“With excessively stretched positioning and highly susceptible to any negative news, WTI dropped towards the $61 level after the API stockpiles jumped +1.026 million barrels versus the previous draw of 5.8 million barrels during the period ended on February 19.

“Although the commodity prices dropped following the bearish stockpile data, bulls probably won’t be charging back to the pen en masses as the smoldering embers around the Middle East powder keg threaten to ignite once again as the US-Iran conflict continues to simmer but at a higher heat level today.”

READ: World’s largest oil producer loses four million barrels per day

What to expect: Still, Oil pundits expect more visibility on oil traders move at the end of next week with the next round of monthly OPEC+ meetings. Outside of a rise in geopolitical risk, upside momentum could be limited in the coming days as oil traders wrestle with OPEC+ next move.

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