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Nigeria, Others Need to Boost Refining Capacity – OPEC

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Opec

The Organisation of Petroleum Exporting Countries has highlighted the need for more refining facilities in Nigeria and other African countries to meet their growing demand for petroleum products.

OPEC, in its 2015 World Oil Outlook, said the inability to keep regional refinery output in line with growing product demand had led to sustained growth in product imports across the African continent.

“Africa is well positioned for downstream capacity additions. Currently, the region imports around 30 per cent of the refined products it consumes. This makes it, in relative terms, by far the largest net product-importing region,” the organisation stated.

The situation exists not only due to insufficient ‘nameplate’ refining capacity, but also because of very low utilisation rates in many of its facilities, the report said.

“With oil demand in the region continuing to grow and with many countries having domestic crude oil available for processing, there is evidently the need and potential for more refining facilities,” it added.

According to OPEC, there are currently only a few projects under construction or in an advanced planning stage in Africa. The largest project under construction is Angola’s Lobito refinery, which will result in the addition of 120,000 barrels per day of capacity coming on stream in 2019. The original design capacity of 200,000 bpd will be reached after the completion of the project’s second phase.

It noted that some capacity expansion could be forthcoming in Nigeria by 2020, either through the rehabilitation of existing refineries – in part to raise their utilisation rates – or through grassroots projects.

Only one of the nation’s four refineries, with a combined capacity of 445,000 bpd, is currently producing petroleum products.

The report stated, “Several refining projects have been announced and Nigeria is currently seeking partnerships with foreign investors for their implementation. However, as of the completion of this outlook, no final decision has been made yet regarding either capacity or timing.

“One project that may materialise in the medium-term is the grassroots 500,000 bpd Dangote refinery and the associated greenfield fertiliser plant in Lagos, Nigeria. If built, this refinery would be Nigeria’s first privately owned and operated refinery.”

Noting the abundant oil and gas resources on the continent, OPEC said, “Adding new refinery capacity is key and integrated refineries that produce fuel products, power and potentially fertilisers could play an important role.”

According to the report, today, Africa has 46 refineries with a total distillation capacity of 3.3 million bpd.

“Except for Libya’s Ras Lanuf refinery, there are no refineries in Africa with integrated petrochemical production, though some refineries have facilities for lubes and asphalt production,” the report added.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Brent Crude Oil Breaks $80 Price Level Amid Supply Concerns

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Brent crude oil - Investors King

Oil markets climbed for a sixth day on Tuesday, reversing earlier losses, on fears over tight supply while surging prices of liquefied natural gas (LNG) and coal also lent support.

Brent crude futures gained $1.05, or 1.3%, to $80.58 a barrel at 0645 GMT, after reaching its highest since October 2018 at $80.75 earlier in the session. It surged 1.8% on Monday.

U.S. West Texas Intermediate (WTI) crude futures rose $1.06, or 1.4%, to $76.51 a barrel, the highest since July 6. It jumped 2% the previous day.

“Investors remained bullish as supply disruptions in the United States from hurricanes are continuing for longer than expected at a time when demand is picking up due to easing lockdown measures and the wider rollouts of COVID-19 vaccination,” said Chiyoki Chen, chief analyst at Sunward Trading.

Hurricanes Ida and Nicholas, which swept through the U.S. Gulf of Mexico in August and September, damaged platforms, pipelines and processing hubs, shutting most offshore production for weeks.

Also weighing on supply, top African oil exporters Nigeria and Angola will struggle to boost output to their quotas set by the Organization of the Petroleum Exporting Countries (OPEC) until at least next year as underinvestment and nagging maintenance problems continue to hobble output, sources at their respective oil firms warn.

Their battle mirrors that of several other members of the OPEC+ group who curbed production in the past year to support prices when COVID-19 hit demand, but are now failing to ramp up output to meet soaring global fuel needs as economies recover.

The supply issues are occurring as countries ease their COVID-19 movement restrictions, potentially boosting demand.

Japan, the world’s fifth-biggest oil user, plans to lift a coronavirus state of emergency in all regions on Thursday as the number of new cases falls and the strain on the medical system eases, Economy Minister Yasutoshi Nishimura said.

Analysts also say rising prices of spot liquefied natural gas (LNG) and coal may support higher oil prices.

“Oil demand could pick up by an additional 0.5 million barrels per day, or 0.5% of global oil supply, as high gas prices force a switch from gas to oil consumption,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.

He added that energy prices could rally from here if the Northern Hemisphere winter proved colder than expected.

China is in the grip of a power crunch as a shortage of coal supplies, tougher emissions standards and strong demand from manufacturers and industry have pushed coal prices to record highs and triggered widespread curbs on usage.

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Gold

Gold Prices Rise as Soft Dollar Supports Safe-haven Appeal

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gold bars - Investors King

Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for a week of speeches from U.S. Federal Reserve policymakers for cues on the central bank’s rate hike path.

Spot gold was up 0.5% at $1,759.06 per ounce, as of 0400 GMT, while U.S. gold futures were up 0.4% at $1,759.00.

While the dollar index softened, the benchmark 10-year Treasury yields eased after hitting their highest since early-July. A weaker dollar offered support to gold prices, making bullion cheaper for holders of other currencies.

“Gold is still looking slightly precarious where it is right now, and it’s probably bouncing off key technical level around $1,750,” IG Market analyst Kyle Rodda said.

“Gold remains an yield story and that yield story is very much tied back to the tapering story.”

A slew of Fed officials are due to speak this week including Chairman Jerome Powell, who will testify this week before Congress on the central bank’s policy response to the pandemic.

“There’ll be a lot of questions being put to Fed speakers about what the dot plots implied last week and weather there is higher risk of heightened inflation going forward and that rate hikes could be coming in the first half of 2022,” Rodda added.

A pair of Federal Reserve policymakers said on Friday they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy.

Gold is often considered a hedge against higher inflation, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.

Investors also kept a close watch on developments in debt-laden property giant China Evergrande saga as the firm missed a payment on offshore bonds last week, with further payment due this week.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased 0.1% to 993.52 tonnes on Friday from 992.65 tonnes in the prior session.

Silver rose 0.9% to $22.61 per ounce.

Platinum climbed 1.3% to $994.91, while palladium gained 0.7% to $1,985.32.

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Crude Oil

Brent Crude Oil Near $80 Per Barrel Amid Supply Constraints

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Brent crude oil - Investors King

Oil prices rose for a fifth straight day on Monday with Brent heading for $80 amid supply concerns as parts of the world sees demand pick up with the easing of pandemic conditions.

Brent crude was up $1.14 or 1.5% at $79.23 a barrel by 0208 GMT, having risen a third consecutive week through Friday. U.S. Oil added $1.11 or 1.5% to $75.09, its highest since July, after rising for a fifth straight week last week.

“Supply tightness continues to draw on inventories across all regions,” ANZ Research said in a note.

Rising gas prices as also helping drive oil higher as the liquid becomes relatively cheaper for power generation, ANZ analysts said in the note.

Caught short by the demand rebound, members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have had difficulty raising output as under-investment or maintenance delays persist from the pandemic.

China’s first public sale of state oil reserves has barely acted to cap gains as PetroChina and Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels.

India’s oil imports hit a three-month peak in August, rebounding from nearly one-year lows reached in July, as refiners in the second-biggest importer of crude stocked up in anticipation of higher demand.

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