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Commodities

Oil prices drop amid curb on air travels

At the time of writing this report, Brent oil futures were down by 1.06% to $49.30 thereby dropping below the $50 mark.

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FG battles 6 oil firms for failure to remit N20 trillion , ExxonMobil, Shell, Chevron delay $58.4 billion oil and gas investment in Nigeria, Crude Oil: Nigeria’s oil production slips for the third consecutive month , Tax reform, policy uncertainty to cause oil drop as foreign firms look outside Nigeria, Nigeria plans to support oil price with lower production cost per barrel, Oil price slumps further to $30 pb, as Nigeria grapples with high production cost, Reduction in PMS: A nod to the deregulation of the downstream sector?

Oil prices drifted lower at the mid-week trading session in London.

The plunge in crude oil prices is largely due to a surge in U.S. crude oil stockpiles and the travel restrictions put in place to limit a new mutant strain of the COVID-19 virus, putting pressure on already weak fuel demand.

READ: Seplat Petroleum seals Crude Purchase Agreement with Waltersmith Petroman Oil Limited

What you must know about the oil price flux

At the time of writing this report, Brent oil futures were down by 1.06% to $49.30 thereby dropping below the $50 mark. West Texas Intermediate futures lost over 1.5% to trade at $46.23.

  • Tuesday’s data from the American Petroleum Institute printed a gain of 2.7 million barrels in U.S. crude oil supply for the week ending Dec. 18. The build was larger than the 3.25-million-barrel draw in forecasts prepared by energy experts and the previous week’s build of 1.973 million barrels.

READ: FG assures oil companies of lower taxes in new PIB

In a note to Nairametrics, Stephen Innes, Chief Global Market Strategist at Axi, spoke on recent market fundamentals prevailing in the oil market:

“And rubbing salt in the oil market wounds today, oil prices lurched lower, after yet another inventory build that was very much bearish to a consensus to what was penciled in by analysts.

READ: 34.5% decline in aviation jet fuel daily sufficiency, a worry for airline companies

Oil traded lower again overnight with worries over the new virus variant and restricted mobility in most of Europe as demand fear resurfaces travel restrictions. And to assume this could be an isolated UK event might be unwise.”

What to expect: The oil cartel is expected to ensure that its crude oil production capacity meets the prevailing energy demand. However, the present situation highlights oil bears having a grip on the black liquid hydrocarbon market, at least for the near term until the COVID-19 caseloads get subdued.

READ: OPEC predicts a deeper drop in global oil demand, based on serious coronavirus challenges

Olumide Adesina is a France-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment trading. Follow Olumide on Twitter @tokunboadesina. He is a Member of the Chartered Financial Analyst Society.

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Commodities

OPEC+ agrees to keep Oil output unchanged, Oil up 4%

Brent Crude was up more than 4% trading around $67 a barrel.

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OPEC+ Alliance, US, Russia, Canada, Mexico reach historic deal to cut 13.4 million bpd, Oil market still uncertain over the OPEC+ deal as prices react positively, 7 oil producing countries most affected by covid-19, see where Nigeria is placed

Oil prices were all fired up at Thursday’s trading session, amid reports revealing OPEC+ agreed to Keep oil output unchanged in April.

What you should know: At the time of writing the report, Brent Crude was up more than 4% trading around $67 a barrel.

OPEC, Russia, and other oil producers on Thursday agreed to keep the status quo unchanged thereby pushing oil past its highest level since January 2020.

This is coming as a big win for the Saudis, which of late has been bent on keeping oil output in check.

Sequel to this landmark feat on keeping oil supply squeezed, OPEC+ had been debating considering if it was ideal to restore as much as 1.5 million barrels a day of output.

However, the Oil Sherrif in the person of Saudi’s Energy Minister Prince Abdulaziz bin Salman urged other leading oil producers in keeping the status quo with the exception of slight increases granted to the Russians and Kazakhstan.

 

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Commodities

Will Nigeria be allowed to produce more oil at this OPEC meeting?

Nigeria is hopeful that OPEC+ will agree to an increase in production.

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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

This week brings forward one of the most important meetings OPEC+ faces in her history. After rescuing the markets from low oil prices with tight supply, the time has come to balance the market. OPEC and its non-OPEC allies, in short, OPEC+, will meet through videoconference in an offer to arrive at an agreement over how to oversee supply to the market.

The current week’s supply choice comes when oil prices have bounced back to pre-pandemic levels. Experts comprehensively anticipate that OPEC+ should increase oil production from current levels, however, questions stay over how much precisely and which nations will be influenced.

READ: How Libya and Iran can add to Nigeria’s woes

Two quotes to review

First the Saudi Energy Minister’s quote – “So I urge you today not to take for granted the progress we have made as a group over the past year. Do not put at risk all that we have achieved for the sake of an instant, but illusory, benefit,”. Prince Abdulaziz bin Salman, the Saudi Energy minister highlighting why OPEC should still tread carefully in increasing output.

Secondly, the Russia Deputy Prime Minister quoted on the 14th of February, “the market is balanced”. Alexander Novak who also co-chairs the OPEC group will be clamouring for more output.

READ: Bloomberg report on OMO is “fabricated” – CBN Official 

The reality

Nigeria’s economy is struggling with its low production quota. The quota is about 1.45 million barrels a day. Although reports show that Nigeria breached its quota by producing 130, 000 barrels more to 1.6 million barrels per day. Late last year, Nigeria applied to have its baseline figure to be reviewed based on disagreements over the classification of output from the country’s Agbami field. Although the request was denied, now Nigeria is hopeful that the group will agree to an increase in production.

Nigeria had shown signs of better discipline at the end of last year, and in recognition Timipre Sylva, the Nigerian Oil minister was sent to guide other African countries in improving their oil compliance levels.

OPEC and its allies are still withholding 7 million barrels a day from the market, which represents about 7% of global supply. Most Investment banks and trading houses believe prices will soar higher because of the tight supply situation. This assertion is supported by the U.S output freeze in Texas and Iranian talks on hold with the U.S.

READ: Will the Oil markets miss Donald Trump?

Although some reports still claim that the market is not as tight as it seems and prices are only up because of how financial markets or funds have gone “long” on commodities. A report from Reuters shows that ‘there might be a disconnect emerging between the strong pricing in the paper oil futures market, and the somewhat more subdued pricing in the physical crude market, especially for east of Suez cargoes.

Interestingly, the narrative the market is showing is only on the production side and does not account for the loss of demand from refineries as some Texas refineries have had poor refining margins.

At the moment, there are too many variables influencing the oil markets. On Monday, traders were assessing tensions between the U.S and Saudi Arabia as the report on the death of Jamal Khashoggi might lead to sanctions on Saudi Arabia. Saudi Arabia might take this into context and pump more in the interim.

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READ: How Nigeria can make more money from Oil?

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Will there be an increase in oil production?

Sources and various energy analysts believe the group will increase production by about 500,000-1 million barrels. Personally, I feel the figure will be close to 750,000 as Saudi Arabia might not roll over their 1 million cut promise to the market. Also, no one will want another March Madness as we witnessed last year so the best strategy is to appease all parties.

Additionally, in what we refer to as scratch-my-back diplomacy, the group will consider India’s request to reduce oil prices as the current prices are hurting economic recovery. Last month, India urged OPEC and allied oil producers to ease production as their economy battles higher gasoline prices.

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Conclusion

Nigeria needs more production capacity. India and Asia need cheaper oil. Russia wants production as they believe the markets are balanced. Saudi Arabia does not want to undo the great work it has achieved since its last meeting. In a game of musical chairs, someone will eventually lose a seat. Hopefully, Nigeria will not lose her seat and get additional barrels.

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