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Hotel Occupancy Drops Below 35% as Recession Bites

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Hotel Occupancy
  • Hotel Occupancy Drops Below 35% as Recession Bites

Nigeria’s hospitality sector has been hit hard by the economic slowdown, with occupancy rates in hotels falling below 35 per cent this year due to the contraction of economic activities in the country.

Findings  showed that hardest hit were the four and five-star hotels in Lagos and Abuja, where bookings have dropped significantly as individuals and companies now prefer to book rooms at cheaper boutique hotels due to the economic crunch.

While the occupancy rate of Southern Sun Hotels, Ikoyi has dropped to about 45 per cent, the occupancy rate at the Intercontinental Hotel, Victoria Island, a five-star hotel and the second largest property in Lagos, is as low as 25 per cent.

Also, the occupancy rate at Wheatbaker Hotel in Ikoyi is currently estimated at 30 per cent, Eko Hotel and Suites, Victoria Island, which boasts a combination of four and five-star sections in its sprawling property, is down to 40 per cent, while the Federal Palace Hotel, also in Victoria Island, has dropped to 35 per cent.

In Abuja, the Transcorp Hilton, the largest property in the federal capital city, which over a year ago boasted an occupancy rate of 70-80 per cent, has seen a slight drop to 65 per cent.

A company source said the reason the Transcorp Hilton has continued to attract guests is because it had anticipated that the change in government last year and dwindling oil prices would impact on the number of guests booked in the hotel by the federal government, so it changed its marketing strategy by targeting guests from the private sector.

The source, however, admitted that weekend occupancy rate at the Transcorp Hilton has dropped significantly, but is offset by improved room bookings on week days.

He said the remodelling project currently being undertaken by the Hilton in Abuja has also helped the hotel to remain relevant in the city.

Nigeria’s third quarter real gross domestic product (GDP) growth data released on Monday by the National Bureau of Statistics (NBS) showed that the country sank deeper into recession, contracting by 2.26 per cent from -2.06 per cent in the second quarter of this year, and -0.36 per cent in the first quarter.

The contraction in GDP was largely driven by the militancy in the Niger Delta, which resulted in a drop in oil output during the third quarter to 1.63 million barrels per day (mbpd) and the decline in the oil sector’s contribution to GDP, notwithstanding the rebound recorded in the agriculture sector.

The latest GDP growth data further confirmed the level of weakness in the economy, which has been hobbled by rising unemployment and job losses, declining capacity utilisation, and acute foreign exchange shortage.
Owing to the sharp drop in hotel occupancy rates, a lot of the hotels have been forced to shed staff as they struggle to remain afloat.

“The point is that a lot of the big hotels have continued to lay off their workers. Like the Southern Sun and Intercontinental Hotel, they had to lay off some workers because of the recession. Today, more people prefer to go to cheaper boutique hotels, not exceeding N50,000 a night.

“They now go to hotels which are rated two to three stars such as the Protea chain in Lagos and Abuja. With less money, people would be booking them more,” an operator who pleaded to remain anonymous said.

Speaking on the development, the Chief Executive of Financial Derivatives Company Limited, Mr. Bismarck Rewane, explained that the average drop in the occupancy rate across the large hotel chains could even be far below 35 per cent.

“If you discount the flight crew rate, it’s even lower. That is because flight crews are always offered cheaper rates. For instance, when a British Airways is booking hotels, if a room is $200, they would pay maybe $100 or even $65 because they are paying for the whole year.

“So, the cabin crew rate is always cheaper. If you discount the cabin crew rate, if occupancy rate is about 40 per cent, they are down actually by 28 per cent.

“The economic recession has finished them (hotel operators) completely. With three consecutive quarters of increasing negative growth, that means some things are not working right,” Rewane 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.

Crude Oil

Oil Prices Decline on Rising India COVID-19 Cases, U.S Inflation Concerns

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Global oil prices extended a decline on Friday following a 3 percent drop on Thursday as coronavirus cases rose in India, one of the world’s largest oil consumers.

Brent crude oil, against which Nigerian oil is priced, declined by 35 cents or 0.5 percent to $66.70 a barrel at 5 am Nigerian time on Tuesday while the U.S West Texas Intermediate (WTI) fell by 28 cents or 0.4 percent to $63.54 per barrel.

The commodity super cycle rally just hit a hard stop and the energy market doesn’t know what to make of Wall Street’s fixation over inflation and the slow flattening of the curve in India,” said Edward Moya, senior market analyst at OANDA.

The crude demand story is still upbeat for the second half of the year and that should prevent any significant dips in oil prices,” he added.

Prices dropped over a series of key economic data that stoke inflation concerns and forced experts to start thinking the Federal Reserve could raise interest rates to curb the surge in inflation.

An increase in interest rates typically boosts the U.S. dollar, which in turn pressures oil prices because it makes crude oil more expensive for holders of other currencies.

This coupled with the fact that India, the world’s third-largest oil consumer, recorded more than 4,000 COVID-19 deaths for a second straight day on Thursday, dragged on the oil outlook in the near term.

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Brent Crude Rises to $69 on IEA Report

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Oil prices rose after the release of the International Energy Agency’s (IEA)  closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.

Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.

The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.

However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.

Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.

“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.

In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.

“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.

The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.

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Crude Oil

OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply

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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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