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OPEC cuts oil demand outlook again as spike in coronavirus slows recovery

Renewed spike in coronavirus cases in major economies slowing down the oil demand recovery has forced OPEC to revise expectations.

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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

The Organization of Petroleum Exporting Countries (OPEC) has revised down its expectations for global oil demand for yet another month, as the renewed spike in coronavirus cases in major economies is slowing down the oil demand recovery.

This new forecast is disclosed in the monthly report of OPEC which was released on Wednesday, November 11, 2020, and is hampering the efforts by the group and its allies to support the market.

READ: OPEC+ planning to pump more crude oil as production increased in July

In its closely watched Monthly Oil Market Report (MOMR), OPEC cut its global oil demand forecast for this year by 300,000 barrels per day (BPD) compared to last month’s estimate, and now sees global oil demand at slightly above 90.0 million BPD this year, down by 9.8 million BPD compared to 2019.

The major reasons for the expected lower demand for this year is due to the recent new lockdowns and curfews in many major European economies, including the UK, France, Germany, and Italy, as a result of the second wave of coronavirus outbreak, as well as weaker-than-expected demand in the developed economies in the Americas in the third quarter of 2020.

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READ: At 60, can Nigeria keep depending on Crude Oil?

OPEC’s report said moves by European governments to close down restaurants and encourage working from home would hit fuel demand for the rest of 2020, with the pandemic’s impact on the oil market lingering until the middle of next year.

The monthly report from OPEC also states that the weaker oil demand recovery is expected to continue into 2021, which cut its estimate for global oil demand next year too.

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READ: 4 key reasons why Brent crude might slip back to $35 per barrel

In 2021, oil demand is expected to grow by 6.2 million BPD when compared to 2020. This is a downward revision of 300,000 BPD compared to OPEC’s October forecast. Next year, total global demand is expected to reach 96.3 million BPD, still lower than the demand before the pandemic.

OPEC said, “These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to COVID-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021.’’

READ: World Bank says Nigerian banks are at risk of being destabilised by COVID-19

“The oil demand recovery will be severely hampered and sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021.’

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It can be recalled that there has been a second wave of coronavirus outbreak which has led to another round of lockdown in some major European economies and the Americas. This has really hit oil demand more than previously expected.

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This also reinforces the need for OPEC and its allies to implement some production cut or even roll over the 7.7 million BPD cut into 2021 instead of easing it by 2 million barrels per day from January.

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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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.

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;

“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.

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“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.

“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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Commodities

Oil prices hit highest level since Q1

Crude oil prices hit their highest price levels since March at the second trading session of the week.

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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

Crude oil prices hit their highest price levels since March at the second trading session of the week. The macros driving crude oil bulls to such gains include reports that COVID-19 vaccine candidate might likely tame the rising COVID caseloads, coupled with U.S. President-elect Joe Biden going ahead to begin his leadership transition.

  • At the time of writing this report,  Brent crude futures rose higher than 1% to trade at $46.56 a barrel while U.S. West Texas Intermediate crude soared higher than 1%, to $43.59 a barrel.
  • Brent crude futures on Tuesday struck its highest price level since early March after the fight between the two oil-producing juggernauts (Saudi Arabia and Russia), which sent oil prices melting like an ice cream exposed in the sun.
  • Both major oil benchmarks closed 2% up yesterday after gaining about 5% last week.

READ: Crude oil prices up 12% in barely 4 days, triggered by OPEC+ proposed cuts

Stephen Innes, Chief Global Market Strategist at Axi in an explanatory note to Nairametrics dissected the macros hitting crude oil prices to soar higher;

“Oil benefited from the vaccine news, with WTI trading around $43 a barrel and Brent near $46 even when the US dollar rallied on positive US PMI numbers and taking a bit of steam out of the broader commodity markets.

READ: Buying signs: Ethereum’s total coin supply held off exchanges continues to rise

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“While the air looks a bit thin above WTI $43, still, the announcement over the weekend that US COVID-19 vaccinations could begin in early December has spurred another wave of optimism for oil and wider markets, bolstered yesterday by the AstraZeneca version of the vaccine.

“Oil markets are rightly jumping for joy as the AstraZeneca delivery is a big deal as most of the developed world will be able to immunize its most at-risk population to COVID by the spring and likely the entire community by mid-year.”

READ: Newly created accounts for Bitcoin hit highest level since January 2018

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What to expect: The curve has continued to shift, flattening considerably from 3Q21 into 1Q22, with the time spreads from Dec21 now in backwardation. The shortage is priced into WTI from the end of next year as a capital discipline remains the priority for oil firms.

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Commodities

Nigeria’s new Gold ETF and money market funds suffer huge outflow

For the second consecutive week, the New Gold ETF, which trades on the Nigerian market has suffered huge outflows.

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Gold surges, Joe biden

As the rally on the cryptocurrency market continues and interest on money market funds continues to fall, investors keep moving their assets around.

For the second consecutive week, the New Gold ETF, which trades on the Nigerian market has suffered huge outflows.

READ: Is Nigeria’s mutual fund industry a duopoly dominated by two fund managers?

During the second week ending November, 13th, the new Gold ETF suffered a total redemption of N5.22 billion bringing its month-to-date (MTD) redemptions for the month of November to N21.7 billion.

This is according to analysis conducted by Quantitative Financial Analytics on the NAV Summary reports released by the Security and Exchange Commission, for the month of November, 2020.

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READ: Pension fund administrators pile up cash in anticipation of withdrawals

Some money market funds have also been witnessing large outflows. Notable among them include FBN Money market fund, which has seen about N11 billion of redemptions, Stanbic IBTC money market fund has also recorded a redemption of N5.99 billion while ARM money market fund suffered a redemption of N3.487 billion, all within the month of November.

Source: Quantitative Financial Analytics

The redemptions from money market funds may not be unconnected with the near-zero interest rates being paid by the money market funds.

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Currently, the FBN Money market fund’s yield is 1.79%, Stanbic IBTC money market fund now yield’s 1.36%, while ARM money market is yielding 1.717%, all on an annual basis.

READ: Top 10 high-yield money market funds that beat inflation in Nigeria

Bond Funds Benefit: A closer analysis shows that those money market fund redemptions are finding their way into various bond and fixed income funds.

Since the beginning of the month of November, bond and fixed-income funds have welcomed some large contributions. Among them are UBN Bond fund which received about N8.7 billion, followed by Stanbic IBTC Bond fund’s N7.7 billion additional contribution.

Also, in that league are Stanbic IBTC Guarantee fund and Zenith Income fund that received estimated contributions of N2.28 billion and N2.147 billion respectively.

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Source: Quantitative Financial Analytics

Compared to the yields on money market funds, Bond and Fixed income funds are currently providing better yields, but they are not the best in the industry currently.

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READ: Nigeria’s Pension Asset increased by N228 billion in October

This shows that investors are moving their fund investments in such a way as to derive better returns than what is obtainable from money market funds without necessarily incurring too much additional risks in the process.

Asset management implications: What is currently playing out in the Nigerian mutual fund arena is an indication that investors are cognizant of events in the market and are therefore actively managing their investments by moving them around among asset classes that are better able to give them better returns.

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