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Oil Prices Fall as OPEC Fails to Stop Excess Production

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Oil production
  • Oil Prices Fall as OPEC Fails to Stop Excess Production

Oil prices dipped Tuesday as expectations dimmed of an OPEC agreement to reduce the cartel’s gushing of crude into the massively saturated global market by around a million barrels per day.

Prices were also hit as non-OPEC Russia confirmed it would not send a delegation to the Organisation of the Petroleum Exporting Countries’ meeting in Vienna on Wednesday.

In late morning European trading, US benchmark West Texas Intermediate for delivery in January was down 73 cents a barrel to $46.35, in what market analyst Jasper Lawler at CMC Markets called “heebie-jeebies” on the eve of the talks.

Brent North Sea crude was down 0.72 cents to $47.52.

Analysts expect further falls if OPEC fails to agree on Wednesday its first joint output cut in eight years in an effort to reduce the global glut and so lift prices.

The group’s big players — Saudi Arabia, Iran and Iraq — disagree on what size cuts each member will make, and the cartel wants non-OPEC countries like Russia to reduce production too.

Russia is currently pumping some 11 million barrels per day, a level not seen since Soviet days. Hit hard by the low price and Western sanctions, Moscow has said it is ready to freeze output but not to cut it.

While making life cheaper for consumers and businesses, two years of low prices have wreaked havoc with the public finances of OPEC member states, even in the wealthy Gulf states.

But Iraq and Iran, OPEC’s biggest producers after Saudi Arabia, on Monday continued to express objections to a proposal to cut up to 1.2 million barrels per day from October levels, Bloomberg News reported, citing an OPEC delegate.

In a 10-hour meeting, Iran said it might be ready to freeze production at about 200,000 barrels a day above its current output of around 3.975 million bpd, Bloomberg said.

Saudi Arabia hit back, saying Tehran should freeze its production at just over 3.7 million bpd — more or less its current level.

Iran has consistently said it won’t cut production until it has reached pre-sanctions levels. It is also a fierce regional rival of Saudi Arabia, engaged in a proxy war in Yemen and backing different sides in Syria.

Iraq meanwhile has said it will cut output but that it is short of money needed to fight Islamic State extremists. It also disputes with OPEC the level of its current output.

OPEC kingpin Saudi Arabia added to the pessimism about prospects for a deal on Sunday by appearing to say it could live without an agreement.

Recovering demand, said Energy Minister Khaled al-Falih — due in Vienna later Tuesday — would “stabilise” prices in 2017 anyway.

Prices had made a slight recovery Monday after Iraqi Oil Minister Jabbar al-Luaibi sounded an upbeat note as he arrived in Vienna, saying he was “optimistic” that the 14-country group would strike an accord.

Algeria, which is trying to mediate a deal, on Monday proposed a compromise with Iran capping its production at 3.795 bpd, delegates said, according to Bloomberg.

However, there has been no indication that any such proposal will actually be accepted when the oil ministers meet on Wednesday.

Bjarne Schieldrop, chief commodities analyst at top Nordic corporate bank SEB, said that the chances of an output cut are now “very low”.

The best possible result, at this stage, was that the club would end up with a face-saving deal while “kicking the can to the next OPEC meeting in half a year’s time”, Schieldrop said.

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.

Economy

Fitch Agency Revises Nigeria’s Growth Projection for 2021

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Fitch Ratings

Fitch Agency Revises Nigeria’s Growth Projection for 2021

Fitch Ratings, one of the world’s leading agencies, has revised down Nigeria’s growth projection for 2021.

The global rating agency predicted that Nigeria will grow by 1.5 percent in 2021, down from the previous 2.3 percent projection.

Fitch based its latest prediction on weaker base effects coming out of a shallower contraction recorded by the country in 2020.

While the agency said oil exports would be the main growth driver for Nigeria in 2021, consumer spending and investment were expected to remain subdued because of the rising inflation and the slow distribution of the COVID-19 vaccine.

Fitch Ratings, however, said Africa’s largest economy could expand by 2.7 percent in 2022, adding that by then it “expect Nigeria’s vaccination programme to gather pace, which will result in private consumption and fixed investment accelerating.”

“We at Fitch Solutions have revised our estimate for Nigeria’s real Gross Domestic Product (GDP) to a contraction of 1.9 per cent in 2020, compared to our previous estimate of a 3.2 per cent fall. The revision follows the release of stronger than expected GDP data indicating that the economy exited recession in the fourth quarter of 2020, growing by 0.1 per cent year-on-year, after contracting by 3.6 per cent in the third quarter of 2020 and by 6.1 per cent in the second quarter of 2020.

“The agriculture and services sectors led the Q4 2020 rebound, expanding by 3.4 per cent and 1.3 per cent respectively, resulting in non-oil growth rising by 1.7 per cent compared to a 2.5 per cent fall in Q3 2020. The oil sector (around 8.0% of GDP) contracted by 19.8 per cent in Q4 2020 – its third consecutive quarterly contraction – because of falling oil production and weak prices.

“Crude production slowed to 1.56 million barrels per day (b/d) in Q4 2020 from 1.67 milion b/d in Q3 2020, partly because of Nigeria’s commitments under the OPEC+ deal, while the price of Brent fell to an average of $43.2 per barrel (/bbl) in 2020 compared to $64.2/bbl in 2019,” it stated.

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Stop Maize, Soybean Export to Reduce Scarcity – NIAL

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Stop Maize, Soybean Export to Reduce Scarcity – NIAL

The Nigerian Institute of Animal Science on Tuesday called on the Federal Government to halt the continued export of maize and soybean to reduce the scarcity of the commodities as well curb their price hike in Nigeria.

Registrar and Chief Executive Officer, NIAL, Prof. Eustance Iyayi, told journalists in Abuja that the poultry sector was currently hit by the severe scarcity of maize and soybean.

This, he said, was due to the continued export of the commodities, the COVID-19 pandemic, which had disorganised the international supply chain, lingering insecurity in the North-East, farmers/herders conflict and flooding in some parts of the country.

“Maize and soybean are being exported and this has exacerbated the situation leading to local scarcity and price escalation of the commodities in poultry production,” Iyayi stated.

He added, “The increasing prices of the essential commodities has resulted in the increase in price of finished feeds by about 75 per cent.

“This has led to the closure of small and medium sized poultry farms thereby threatening about 10 million jobs as a result of this scarcity.

“To set the poultry industry from total collapse, the institute urges the government to immediately halt the exportation of soybean and maize and grant import permit to importers at the official foreign exchange rate.”

Iyayi said there was shortage of soybean in Nigeria and other countries, stressing that the little amount being produced across the country should not be exported.

He said the current maize yield of about one to two tonnes per hectare being produced in Nigeria would not be enough to sustain the country.

The NIAL helmsman stated that the country should be producing between seven and 10 tonnes per hectare in order to meet the requirements for humans and animals.

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Economy

Petrol Landing Cost Jumps to N186, Oil Hits $64

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Petrol Landing Cost Jumps to N186, Oil Hits $64

Against the backdrop of the rising price of oil prices, the landing cost of Premium Motor Spirit (petrol) imported into Nigeria has increased to N186.33 per litre.

Investors King had exclusively reported on February 9 that the landing cost of PMS rose to about N180 per litre on February 5 from N158.53 per litre on January 7.

Crude oil price accounts for a large chunk of the final cost of petrol, and the deregulation of petrol price by the Federal Government last year means that the pump price of the product will reflect changes in the international oil market.

Going by the petrol pricing template of the Petroleum Products Pricing Regulatory Agency, the landing cost of petrol rose to N186.33 per litre on February 16, with the pump price of the product expected to be N209.33 per litre.

The international oil benchmark, Brent crude, closed at $63.96 per barrel on February 16, up from $59.34 per barrel on February 5.

The rising price of crude oil pushed the cost of petrol quoted on Platts to $560.75 per metric tonne (N163.08 per litre, using N390/$1) on February 16 from $543.25 per metric tonne (N157.99 per litre) on February 5.

Other cost elements that make up the landing cost include freight (N10.29), lightering expenses (N4.57), insurance cost (N0.25), Nigerian Ports Authority charge (N2.38), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N1.33).

The freight cost increased to $35.41 per MT (N10.29 per litre) last Wednesday from $30.04 per MT (N8.74 per litre) on February 5.

The pump price is the sum of the landing cost, wholesale margin and the distribution margins. The wholesale margin is N4.03 while the distribution margins comprise transporters allowance (N3.89), retailer (N6.19), bridging fund (N7.51), marine transport average (N0.15), and admin charge (N1.23).

Apart from the changes in global crude oil prices, the exchange rate of naira to the dollar also affects the cost of imported petrol.

The cost of petrol would be higher if the 410/$1 rate at which the naira closed on Monday at the Investors’ and Exporters’ Foreign Exchange Window was used. The naira closed at 480/$1 at the parallel market.

The Nigerian National Petroleum Corporation, which has been the sole importer of petrol into the country in recent years, is still being relied upon by marketers for the supply of the product despite the deregulation of the downstream petroleum sector.

Oil marketers said recently that they were ready to resume importation of petrol if the foreign exchange was made available to them at a competitive rate.

“The discussion we should be having today is how best to maximise the benefits of the removal of price controls and subsidies while minimising the adverse effects of this action on our citizens,” the Chairman, Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, said at a virtual press briefing.

Brent crude, against which Nigeria’s oil is priced, rose by $1.67 to $64.58 per barrel as of 6:08pm Nigerian time on Monday.

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