Commodities
How Libya and Iran can add to Nigeria’s woes
Oil prices are expected to rise slightly in the last quarter of the year, with further gains due to a cold snap in global travel and the ongoing economic recovery.
Libya and Iran are two OPEC countries exempted from a supply agreement between OPEC and partners, including Russia, known as OPEC. The deal helped lift 2020 spending from notable lows in April as the COVID-19 pandemic whittled down demand.
Oil production in Libya received a positive response after the leader of eastern Libya, Khalifa Haftar, announced on September 18 that his powers would remove an eight-month oil barricade on exports.
The overview discovered output went higher than normal by 70,000 bpd in September.
Libyan oil production has arrived at 680,000 barrels for each day (bpd), more than a third higher than it was earlier in October, as they look to restore their oil industry.
Libya’s National Oil Corp. (NOC) finished power Majeure on the last two facilities shut by an eight-month barricade of oil exports by Eastern powers.
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The barricade on oil exports in January brought the Libyan production low, to around 100,000 bpd from 1.2 million bpd. The current output level indicates an increase from around 500,000 bpd earlier in October.
Oil from Iran increased by 120,000 barrels per day as exports rose in September despite U.S. sanctions, in line with average tanker tracking estimates, which are more extensive than in previous months.
Iran has about 10% of the world’s dependable oil reserves and 15% of gas. It is the second-largest OPEC exporter and the fourth-largest oil producer in the world. As one of the largest oil producers in the world, Iran is poised to regain its lost market share to competitors due to US sanctions. In the case of Joe Biden, winning Donald Trump to become the 46th US President.
Biden signed that the United States, under his presidency, will revert to the 2015 nuclear deal that Washington negotiated when he was Barack Obama’s vice president. This means that economic sanctions imposed by Trump on Iran could eventually be eased, paving the way for Iranian oil exports of more than two million barrels a day.
Although Iran can produce around 3.8 million barrels per day, it pumps only half of that and consumes most of the oil itself.
READ: Emerging concerns on crude oil price dents economic recovery
Iranian oil is expected to hit the market in the months following Biden’s election and will be a real headache for OPEC. The deadline for the oil market is full. The OPEC cartel, to which Iran belongs, is limiting supplies to raise prices as the coronavirus ruins demand. Brent fell about 3% to below $38 a barrel on Thursday, extending this year’s decline to more than 40%.
Libya has taken a major step towards resurrecting a crumbling oil industry by discovering its largest oil field, a new challenge for OPEC as a large coalition of producers tries to restrict supplies.
Libyan Provincial Energy Company National Oil Corporation cancelled force majeure in the western part of Shararah and ordered its operator to resume production.
The Shararah re-opening follows a ceasefire during the protracted Libyan civil war, which has already brought many oil fields and ports into effect in the east after being almost completely closed in January.
The National Olympic Committee did not mention El Feel, which means elephant in Arabic.
The camp, producing 70,000 barrels a day, came into existence after the closure and restart of Sharara, as it was powered by electricity from a larger neighbour.
READ: OPEC predicts a deeper drop in global oil demand, based on serious coronavirus challenges
Libya’s manufacturing sector is now returning to the market as OPEC pledged to collapse. Oil prices are expected to rise slightly in the last quarter of the year, with further gains due to a cold snap in global travel and the ongoing economic recovery.
Analysts expect Brent and West Texas Intermediate prices to drop to a low of $ 40 / barrel, but also see the risk of further declines in oil prices. Oil prices recovered from a drop earlier this year as the global economy stabilized. Oil futures were also temporarily on the negative mark as the market reacted to a huge supply glute and a sharp fall in global demand.
WTI futures fell below $ 40 this week to close at $ 38.71 on Thursday, down 3.9% amid coronavirus concerns and reports of increased production from the OPEC. There is expected to be little price movement, although it is expected that the crude oil market will expand to a 4.9 bpd deficit after OPEC’s cut if demand picks up.
But diesel and jet fuel/kerosene are the largest group of petroleum products in the crude oil market. This means that oil prices cannot rise until the demand for distilleries, including aviation fuel, returns to normal.
READ: At 60, can Nigeria keep depending on Crude Oil?
Another factor affecting oil prices was the resumption of production in Libya. If Libya should go back to its full potential, it will come back to a million barrels a day. That is another million barrels they don’t need.
It could also put pressure on OPEC +, which is trying to bring oil back to the market. If demand does not reach the mark of the 1990s [millions of barrels per day], OPEC will have to face some difficulties and extend the cuts.
Nigeria, like other oil-producing countries, is suffering from a double economic recession linked to the coronavirus and falling oil prices. Falling oil prices and demand for oil, along with a new OPEC contract to cut production, which Nigeria has yet to fully meet, have weakened the Nigerian government’s revenues more than any other major source.
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In the second quarter of this year, Nigeria’s economy decreased by 6.1% year on year due to low oil prices and lockdowns to control the spread of the coronavirus. After the start of the OPEC deal in May, Nigeria’s participation in the deal should have led to a deeper economic recession and budget deficit, as well as increasing pressure on external financing due to falling prices.
Nigeria’s fiscal break-even point – the price of oil on which Nigeria balances its budget- is very high at $133 per barrel given its extremely low non-oil tax. According to the latest World Bank data on Nigeriain June 2020, the collapse in oil prices due to the pandemic is expected to plunge the Nigerian economy into its worst recession in four decades, the worst since the 1980s.
Commodities
Oil prices heading for 5th week of gains, near $50 per barrel
Brent crude futures gained over 1%, as it was within striking distance of hitting the $50/barrel price mark after gaining around 1% on Thursday.
Crude oil prices are rallying higher at the last trading session of the week, headed for the fifth week of gains.
OPEC+ members agreed to continue limiting crude oil production to cope with the COVID-19-hit demand, but the compromise agreed on wasn’t what oil traders had really hoped for.
- At the time of writing this article, Brent crude futures gained over 1%, as it was within striking distance of hitting the $50/barrel price mark after gaining around 1% on Thursday.
- West Texas Intermediate futures were also surging by over 1% trading around $46/barrel.
- OPEC+, the popular alliance that includes OPEC members, Russia, and other leading oil producers, agreed yesterday to ease deep oil output cuts from January by half a million barrels per day, but still failed to reach a compromise on a broader policy for the rest of 2021.
- Oil traders had earlier anticipated that the popularly known oil cartel group would roll over oil cuts of 7.7 million barrels per day or about 8% of global oil production, at least until the end of Q1 2021.
What they are saying
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave vital insights on the outcome of the all-important meeting, and the high expectations of significant price volatility at the crude oil market:
“All eyes were on the OPEC+ meeting overnight, where oil ministers ended up meeting at the halfway house and sharing a glass half full in a typical OPEC + fudgy. They came up with the ultimate compromise as the producer’s group agreed to taper production increases.
“They will start with 500k barrels from January and hold monthly meetings to review prices and decide on output policies. These meetings will bring some volatility to the market and, importantly, stand to make hedging harder for US producers.
“One interesting but not so cohesive front was Saudi Arabia and Russia usually chair the meeting; only Russia did the honours this time. Some see this as a clear sign of the conflicts within the organization.”
What to expect
Looking at the recent price action, Nairametrics is of the opinion that the futuristic price movements of oil prices would largely depend on the degree to which OPEC+ cohesion remains intact.
Commodities
Oil prices slump, OPEC+ meets today
Brent crude futures prices were down by 0.3%, trading at $48.10/barrel after initially gaining 1.8%.
Crude oil prices were trading lower at the fourth trading session of the week, as major oil producers including Saudi Arabia and Russia are set to meet on oil production cuts extension set in place in the first wave of the COVID-19 onslaughts.
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- At the timing of writing this report, Brent crude futures prices were down by 0.3%, trading at $48.10/barrel after gaining 1.8% yesterday.
- U.S. based oil contract, West Texas Intermediate futures, traded at $45.11/barrel, having ended 1.6% higher at Wednesday trading session.
- OPEC+ are resuming talks in discussing policies for next year after earlier talks produced no agreement on how to tackle soft energy demand amid a new COVID-19 wave.
- Oil traders anticipate that the popularly known oil cartel group will roll over oil cuts of 7.7 million barrels per day or about 8% of global oil production, at least until the end of Q1 2021.
- But after hopes coming from three promising COVID-19 vaccines set for the market triggered a rally in oil prices at the end of last month, some major oil stakeholders recently questioned if such prevailing cuts are still needed
READ: Crude oil prices rally as investors remain optimistic about oil production cut
What they are saying
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave vital insights on leading fundamentals weighing on oil prices including the expected outcome from the all-important meeting scheduled to hold today,
“I expect oil to be whippy but confined to current ranges, until OPEC+ signals the all-clear for traders to shift oil prices back to recent highs.
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“Reports were hitting the streets of unnamed OPEC+ delegates saying that progress is being made on talks about production cuts. That, combined with the surprise US inventory draw today, has triggered a move up in oil.
“Discussions will continue in earnest and I think given what is at stake, the base case should be that OPEC+ agrees to an extension of cuts. There are clear tensions within OPEC that may undermine market confidence in the OPEC+ deal from now on.
“It will be more important than ever for OPEC+ to present a unified front, while waiting for demand to recover when the vaccine becomes widely distributed.”
READ: OPEC crude oil production drops to its lowest in nearly 30 years
READ: Crude oil prices up 12% in barely 4 days, triggered by OPEC+ proposed cuts
What to expect
Any sign that OPEC+ is struggling to reach an agreement could weigh down on oil prices, at least in the near term.
Commodities
Gold prices drop amid COVID-19 vaccine optimism
Gold futures prices dropped 0.32% at $1,813/ounce, though it’s now trading above the $1,800 mark.
Gold prices drifted lower in Wednesday’s trading session.
The plunge in the precious metal price is coming on growing optimism over U.S. talks for the latest stimulus deal and a COVID-19 vaccine hitting the market very soon saw a retreat from the safe-haven yellow metal.
- At the time of writing this report, Gold futures prices dropped 0.32% at $1,813/ounce, though it’s now trading above the $1,800 mark after it recorded impressive gains on Tuesday as the U.S dollar retreated, yet gold bulls still face uphill challenges from the COVID-19 vaccine optimism prevailing among global investors.
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Global investors are primarily reducing their bullish bias, taking into consideration the most recent testimony from U.S Treasury Secretary, Steve Mnuchin, and US Federal Reserve Chairman, Jerome Powell, on Monday to the Senate Banking Committee.
Though both hinted that the world’s largest economy was on the path to recovery, they emphasized the need for a lifeline.
READ: U.S dollar set for weekly losses, currency traders buy Euro, British Pound
What you should know
In an explanatory note to Nairametrics, Stephen Innes, Chief Global Market Strategist at Axi, spoke on why the yellow metal could face more selling pressure in the coming weeks, taking into consideration, market sentiments that the future looks bright:
“Gold had been trading well below USD1,800/oz and came close to testing the psychological make or break for ETF concerns USD1,750/oz level. Flashing green lights at the end of the tunnel suggest investors should look through the immediate concerns and focus on the future, which seems incredibly bright and bullish.
“So, with month-end selling pressure mostly out of the way, it could allow investors to focus on those flashing green sectoral lights at the end of the Covid-19 tunnel.”
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What to expect
Although, a weaker U.S dollar effectively threw a lifeline around gold prices yesterday, helping it rally back from two weeks of declines. That said, Gold prices might resume its bearish play amid high hopes on COVID-19 vaccines.
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