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FG Revenue Crisis Deepens as Oil Hits $28

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Worries about Iran’s return to an already oversupplied oil market drove down global benchmark, Brent crude on Monday to as low as $27.67 per barrel, its lowest since 2003, before recovering to trade at $28.50.

With the further slide, Brent, against which Nigeria’s oil is priced, was almost $10 lower than the oil benchmark price of $38 per barrel proposed by President Muhammadu Buhari for this year’s budget.

Buhari had in the 2016 to 2018 Medium-Term Expenditure Framework and Fiscal Strategy Paper sent to the National Assembly for this year’s budget said oil-related revenues were expected to contribute N820bn.

The price of the Nigerian crude oil, Bonny Light, fell to $28.93 per barrel as of Monday, compared to $29.47 last week, according to latest data obtained from the Central Bank of Nigeria.

Iran’s Deputy Oil Minister, Roknoddin Javadi, on Monday expressed confidence that his country could produce extra 500,000 barrels per day. Iran has the fourth largest proven oil reserves in the world, according to the US Energy Information Administration.

The United States over the weekend revoked sanctions that had cut Iran’s oil exports by about two million barrels per day since their pre-sanctions 2011 peak to a little more than one million bpd.

The potential return of Iranian oil exports to South Africa threatens to displace barrels from Saudi Arabia and Nigeria that plugged the supply gap when sanctions were imposed on OPEC’s fifth-biggest producer, according to Bloomberg.

“The re-emergence of Iranian crude oil provide options for those willing to buy from Iran,” the Executive Director, South African Petroleum Industry Association, Avhapfani Tshifularo, said in an e-mailed response to questions.

“Iranian imports are likely to displace the Nigerian and Saudi Arabian crudes, since they seem to have filled the gap when South Africa stopped importing Iranian crude oil.”

The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, said in a telephone interview with our correspondent, “Nigeria’s crude will continue to face challenges to sell because other grades are now cheaper and also attractive to buyers. The same revenue implication: lower revenue for the government.”

On the return of Iran to the market, he said, “Iran remains a major threat to Nigeria in India, and that could affect trade this year. Before now, traders have had issues selling our cargoes.”

The Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, had last week said, “In 2014, the price of oil was $116 per barrel and the cost of production was $25 per barrel. The yield on every barrel was $91. Cost of production per barrel is still $25, the price is $30. So, the yield has gone from $91 to $5 per barrel. That is the magnitude of the problem.

“In 2008, we suffered for nine months only and oil price bounced back. But the average price of oil in 2009 was $61.9 per barrel; in 2016, the average price is projected at $45. External reserves in 2009 were $53bn; gross external reserves today are $28bn. The exchange rate in 2009 was N150 to the dollar at the BDC and official, 154. Today, the BDC is N300, while the official rate is N199. The Excess Crude Account was $22bn in 2009; it is $2bn today. The total external debt in 2009 was $10.4bn; while it is $17.1bn today.”

Punch

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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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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