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The Global Oil Surplus will Persist at Least Until Late 2016

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NORTH DAKOTA OIL

The global oil surplus will persist at least until late 2016 as demand growth slows and OPEC shows “renewed determination” to maximize output, according to the International Energy Agency.

The Organization of Petroleum Exporting Countries, by effectively dropping production limits at its Dec. 4 meeting, is displaying hardened resolve to maintain sales volumes even as prices fall in an oversupplied market, the agency said Friday in its monthly report. While its policy is hitting rivals, triggering the steepest drop in non-OPEC supply since 1992, world oil inventories will likely swell further once Iran restores exports on the completion of a deal to lift sanctions, it said.

Oil slumped to a six-year low below $40 a barrel in London after OPEC, which controls about 40 percent of world supply, said it would keep pumping in excess of its old production limit. Saudi Arabia, the group’s most powerful member, has steered its strategy to pressure rivals in the U.S. with lower prices.

“As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market,” said the Paris-based agency, which advises 29 nations on energy policy. OPEC’s decision last week “appears to signal a renewed determination to maximize low-cost OPEC supply and drive out high-cost non-OPEC production — regardless of price.”

Swelling Inventories

Abandoning output targets doesn’t mean OPEC is about to further open the taps, as its biggest members — Saudi Arabia and Iraq — are already pumping near record levels, the agency said. The group probably won’t bolster output until Iran completes an agreement on its nuclear program that would lift sanctions on crude exports, the IEA predicted. Iran’s return will probably help to swell oil inventories by an “impressive” 300 million barrels, the agency said.

The accumulation of the surplus will actually slow next year to about half the pace observed in 2015 as non-OPEC supply wilts and demand remains strong enough to absorb some of the excess. The combination of rising consumption and an expansion in storage facilities means the world won’t run out of space to store the surplus crude, the agency said.

Strategy Working

“There is evidence the Saudi-led strategy is starting to work,” the agency said. “Oil below $50 is clearly driving out non-OPEC supply.” Production from outside OPEC will contract by 600,000 barrels a day next year, compared with a surge of 2.4 million a day in 2014, the IEA predicted.

Global oil demand growth will slow to 1.2 million barrels a day in 2016, down from a five-year peak of 1.8 million reached this year, as the boost from cheap fuel prices wears off, the agency said. The agency’s 2016 estimates of demand and supply are unchanged from last month’s report.

Production from OPEC’s 12 members rose by 50,000 barrels a day to 31.73 million a day in November, the highest in two months, the agency said. That’s about 400,000 a day more than the average required from the group next year.

Bloomberg

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Flashing Green

Oil prices have rebounded strongly over the last few days – up around 10% from the lows – buoyed by the prospect of a lower price cap on Russian crude

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Traders Wall Street

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

We’re seeing green flashing across the board on Thursday, with sentiment buoyed by positive signals on Fed rate hikes and China’s Covid response.

While it could be argued that Jerome Powell’s comments on Wednesday were relatively balanced – slower tightening now but rates high for longer – the last year has proven that anticipating the path of inflation even a short period ahead is incredibly difficult. Knowing what the Fed intends to do next is far more valuable than what it thinks it may do 6-12 months down the line.

And anything that is perceived to reduce to possibility of an interest rate recession is going to be a positive for equity markets. The Fed has every opportunity to tighten more in the months ahead if the data doesn’t play ball. What’s far more difficult is undoing the damage caused by moving too fast now with little to no visibility on how impactful past tightening has been.

Positive signals

The signals coming from China also look very positive. While we shouldn’t expect a dramatic shift in policy from the leadership, particularly before the March Congress, any modest softening in its Covid-zero policy will and should be welcomed. The approach has been extremely damaging to growth and confidence and the protests highlight how public opinion towards it is changing.

We shouldn’t be naive to the fact that a move away from the policy won’t be easy and there’ll be plenty of setbacks. But it’s certainly a step in the right direction that, along with the measures announced to revive the property market, could put the economy on a much better path.

A huge few days for oil markets

Oil prices have rebounded strongly over the last few days – up around 10% from the lows – buoyed by the prospect of a lower price cap on Russian crude, another large production cut from OPEC+ this weekend, and China’s evolving Covid stance. There remains considerable uncertainty surrounding all of the above though which will likely ensure prices remain volatile going into the weekend. That could carry more risk than normal if the OPEC+ meeting does go ahead as planned on Sunday and the EU hasn’t agreed to the price cap level by the close of play Friday. The range of possibilities on these two things alone is huge which will make rumours and speculation over the coming day or two all the more impactful.

Gold testing range highs

Gold bulls were particularly happy with Powell’s comments on Wednesday with the yellow metal rallying strongly to trade at the upper end of its recent range. It faces strong resistance around $1,780 though which was a significant level of support in the first half of the year. With so much data to come over the next day or so, it may not prove particularly resilient if traders are given further hope that rates will rise more slowly and peak lower.

Some relief for cryptos

The risk relief rally is coming at just the right time for bitcoin, helping it to recover from the lows to trade around $17,000. This is around the highs of the last few weeks since it settled after its latest plunge. Whether it will be enough to revive interest in the cryptocurrency, I’m not sure. The FTX fallout is continuing to weigh heavily on the space and the prospect of more contagion or scandals is hard to ignore.

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Crude Oil

Oil Revenue into Foreign Reserve Dropped From $3bn Monthly in 2014 to Zero in 2022

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Oil

The official foreign exchange receipt from crude oil sales into Nigeria’s official reserves has dried up steadily from above US$3.0 billion monthly in 2014 to an absolute zero dollar today, the Central Bank of Nigeria (CBN) governor, Godwin Emefiele disclosed.

Speaking at the 57th annual bankers’ dinner organized by the Chartered Institute of bankers of Nigeria (CIBN) in Lagos, the CBN governor noted that there has been a significant loss in foreign reserves due to the naira’s struggle and the rise in demand for forex. 

He added that the sharp increase in the number of Nigerians who are seeking education in foreign countries particularly the UK has resulted in an unprecedented demand for foreign exchange. 

According to him, the number of student visas issued to Nigerians by the UK alone has increased from an annual average of about 8,000 visas as of 2020 to nearly 66,000 in 2022.

Emefiele also lamented about the level of crude oil theft in Nigeria which has significantly affected the country’s oil production. He noted that crude oil theft has adversely impacted the Country’s foreign exchange reserves.

Investors King had earlier reported that Nigeria has lost its coveted position as Africa’s largest oil producer after oil production dropped below the mark of 1 million barrels per day. 

Nigeria currently trails Angola, Libya and Algeria to the fourth position. 

Meanwhile, on the Naira-4-Dollar scheme which the CBN introduced to boost migrant remittances into the Nigerian economy, the CBN governor noted that the scheme has largely been successful. 

“I am happy to note that, so far, the Naira-for-Dollar scheme has been successful in increasing remittance inflows through our registered International Money Transfer Organisation (IMTOs),” he said.

Emefiele also noted that the introduction of the National Domestic Card Scheme (NDCS) will help to reduce the operating cost incurred by commercial banks while using foreign cards. 

It could be recalled that the CBN earlier announced that it planned to introduce Nigeria-made transactional cards to replace well-known cards such as Visa and MasterCard.

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Crude Oil

Crude Oil Gained 2% as U.S. Oil Inventories Dipped Last Week

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Crude Oil - Investors King

Crude oil appreciated on Tuesday on signs global supply is declining amid better-than-expected optimism on Chinese economic recovery and a weaker dollar.

But the likelihood that OPEC+ will leave output unchanged at its upcoming meeting limited the gains.

Brent crude futures rose $2.06, or 2.48% to $85.09 per barrel by 1044 GMT. The more active February Brent crude contract rose by 2.02% to $85.95.

U.S. West Texas Intermediate (WTI) crude futures climbed $1.69, or 2.16%, to $79.89.

Support followed expectations of tighter crude supply.

U.S. crude oil stocks dropped by 7.9 million barrels in the week ended Nov. 25, according to market sources citing American Petroleum Institute figures on Tuesday.

Official figures are due from the U.S Energy Information Administration on Wednesday.

And the International Energy Agency expects Russian crude production to be curtailed by some 2 million barrels of oil per day by the end of the first quarter next year, its chief Fatih Birol told Reuters on Tuesday.

On the demand side, further support came from optimism over a demand recovery in China, the world’s largest crude buyer.

China reported fewer COVID-19 infections than on Tuesday, while the market speculated that weekend protests could prompt an easing in travel restrictions.

Guangzhou, a southern city, relaxed COVID prevention rules in several districts on Wednesday.

A fall in the U.S. dollar was also bearish for prices. A weaker greenback makes dollar-denominated oil contracts cheaper for holders of other currencies, and boosts demand.

Fed Chair Jerome Powell is scheduled to speak about the economy and labour market on Wednesday, with investors looking for clues about when the Fed will slow the pace of its aggressive interest rate hikes.

Capping gains, the OPEC+ decision to hold its Dec. 4 meeting virtually signals little likelihood of a policy change, a source with direct knowledge of the matter told Reuters on Wednesday.

“Market fundamentals favour another cut, especially given the uncertainty over China’s COVID situation … Failure to do so risks sparking another selling frenzy,” said Stephen Brennock of oil broker PVM.

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