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Nigerian Oil Misses Goals After Legal Gridlock Deters Investors

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  • Nigerian Oil Misses Goals After Legal Gridlock Deters Investors

When OPEC exempted Nigeria from its plan to cut oil output for the first time in eight years, it highlighted how far Africa’s biggest producer has fallen.

From January to October, just over three wells a month were drilled in Nigeria, down from a monthly average of almost 22 in 2006, according to petroleum ministry data. While output rebounded to 2.1 million barrels a day from the 27-year low in August, that’s just half the government’s goal at the start of the millennium.

While OPEC members try to implement a deal in Vienna next week, Nigerian lawmakers in Abuja must unblock an eight-year legislative impasse that’s seen oil majors from Royal Dutch Shell Plc to Chevron Corp. quit fields in the West African nation. To end the regulatory uncertainty, Nigeria needs to set tax rates that spur investment in a stagnating deep-water sector and address unrest that has disrupted production in the Niger Delta.

“Any business requires clarity on the operating environment before committing to investments,” said Pabina Yinkere, an energy analyst and head of research at Lagos-based Vetiva Capital Ltd. “The uncertainty surrounding the passage of the petroleum industry bill definitely stalled possibly hundreds of billions of dollars commitments on many projects.”

Since the oil bill was first sent to Nigerian lawmakers in 2008, international producers have sold at least $5.2 billion of assets to local companies. Most of those sales came before oil prices slumped in mid-2014.

Officials at Shell, Exxon Mobil Corp., Chevron, Total SA and Eni SpA declined to comment on the impact of regulatory uncertainty on their operations. Oil majors in joint ventures with state-owned Nigerian National Petroleum Corp. pump about 80 percent of the country’s oil.

Regulatory Uncertainty

The lack of clarity “was one of the main contributory factors behind divestments by Shell, Chevron and ConocoPhillips,” said Antony Goldman of London-based PM Consulting, which advises on risk in West Africa’s oil and gas industry. “No other international company, including the Chinese, were among the buyers.”

Nigeria has been granted an exemption from OPEC’s supply-management plan after output fell as low as 1.39 million barrels a day in August, following attacks by militants on oil pipelines supplying the Forcados, Qua Iboe, Brass River and Bonny export terminals. The conflict, combined with lower oil prices, has blighted the economy which is heading for its first full-year recession in 2016 since 1991, according to the International Monetary Fund.

While exacerbated by low prices and violence in the Niger Delta, the decline in the nation’s oil industry goes back more than a decade as investors reined in exploration, said Goldman. Nigeria’s crude reserves have dropped to less than 32 billion barrels from 37 billion barrels 15 years ago, and far short of a 2010 target for 40 billion barrels, according to Yinkere.

Lost Investment

Nigeria may have lost $200 billion in investment, according to the Abuja-based Nigeria Extractive Industries Transparency Initiative.

Even recent discoveries, such as Exxon’s 1 billion-barrel deep-water asset last month, largely reflect old efforts paying off in a part of the Gulf of Guinea known for its prodigious prospects, said Yinkere.

President Muhammadu Buhari, who promised to end the legislative logjam after winning elections last year, has yet to present a new draft of a bill that would end squabbling among regions over the distribution of revenues.

In December, frustrated lawmakers will push a private-members bill to address oil company concerns over proposals to increase tax rates on offshore fields from 50 percent, Senate President Bukola Saraki said in a Nov. 10 interview in Abuja.

“We have to engage with the operators, hear their views and also look at Nigeria’s interest from our revenue point of view,” Saraki said. “We can’t dictate as government, a take-it-or-leave-it approach. It has to be a win-win.”

Emmanuel Kachikwu, Nigeria’s minister of state for petroleum, has said he’ll work with the Senate to ensure the reform bill is passed in the next year.

Without the law and clear “contractual terms” for operators, Nigeria won’t reverse the decline in its oil industry, according to Goldman. “In eight years the bill has gone through many forms and no one knows when that’s going to end.”

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.

Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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Crude Oil

Oil Prices Extend Gains to $64.32 Ahead of OPEC+ Meeting

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Oil Prices Rise to $64.32 Amid Expected Output Extension

Oil prices extended gains during the early hours of Thursday trading session amid the possibility that OPEC+ producers might not increase output at a key meeting scheduled for later in the day and the drop in U.S refining.

Brent crude oil, against which Nigeria oil is priced, gained 0.4 percent or 27 cents to $64.32 per barrel as at 7:32 am Nigerian time on Thursday. While the U.S West Texas Intermediate gained 19 cents or 0.3 percent to $61.47 a barrel.

“Prices hinge on Russia’s and Saudi Arabia’s preference to add more crude oil production,” said Stephen Innes, global market strategist at Axi. “Perhaps more interesting is the lack of U.S. shale response to the higher crude oil prices, which is favourable for higher prices.”

The Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, are looking to extend production cuts into April against expected output increase due to the fragile state of the global oil market.

Oil traders and businesses had been expecting the oil cartel to ease production by around 500,000 barrels per day since January 2021 but because of the coronavirus risk and rising global uncertainties, OPEC+ was forced to role-over production cuts until March. Experts now expect that this could be extended to April given the global situation.

“OPEC+ is currently meeting to discuss its current supply agreement. This raised the spectre of a rollover in supply cuts, which also buoyed the market,” ANZ said in a report.

Meanwhile, U.S crude oil inventories rose by more than a record 21 million barrels last week as refining plunged to a record-low amid Texas weather that knocked out power from homes.

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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