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Focus Shifts to Execution after OPEC Deal

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  • Focus Shifts to Execution after OPEC Deal

After an intensely negotiated meeting, the Organisation of Petroleum Exporting Countries (OPEC) decided to cut crude oil production amongst its member countries in a bid to support market rebalancing and shore up oil prices.

As widely reported, the impact of the decision on the energy world was immediate. It saw benchmark oil prices gained as much as 10 per cent in New York for example, and the share prices of energy companies around the globe jumped alongside the currencies of large exporters.

In reaching the agreement, OPEC reportedly stated that the global oil market had witnessed a serious challenge of imbalance and volatility pressured mainly from the supply side, which has also led to significant investment cuts in the oil industry.

This, the cartel noted, had a direct impact on offsetting the natural depletion of reservoirs and in ensuring security of supply to producers.

The current market conditions, it explained are counterproductive and damaging to both producers and consumers because it threatens the economies of producing nations, hinders critical industry investments, jeopardises energy security to meet growing world energy demand, as well as challenges oil market stability as a whole.

The cartel thus asked its members to lead in the market rebalancing effort, which in this regards saw to a number of production discounts agreed by members.

Within the deal, Algeria will have to shave off about 50,000 barrels per day (bpd) to now produce 1.039million barrel per day (mbpd), Angola will do 1.673mbpd from 1.715mbpd, Ecuador – 522,000bpd from 548,000bpd, Gabon – 193,000bpd from 202,000bpd, Iran – 3.797mbpd from 3.975mbpd, Iraq – 4.351mbpd from 4.561mbpd, and Kuwait – 2.707mbpd from 2.838mbpd.

Other members like Qatar will also do 618,000bpd from 648,000bpd, Saudi Arabia – 10.058mbpd from 10.544mbpd, United Arab Emirates (UAE) – 2.874mbpd from 3.013mbpd, and then Venezuela from 2.067mbpd down to 1.972mbpd.

Nigeria and Libya are however left out for their peculiar challenges, while Indonesia had suspended its membership of the cartel.

But whether their plan would be sustainable, depends largely on how its members firmly stick to the agreement they reached in Vienna, and this is more worrisome on reported accounts that they have not always done that in the past.

However, in a statement it published at the conclusion of the 171st Ministers’ meeting, the cartel indicated that it would shave off approximately 1.2 mbpd from its daily production volume to 32.5mbpd, a notch analysts said, was above the 1.1mbpd cut it had pledged it would do when it met in September at the International Energy Forum in Algiers.

Though expected to take effect from January 1, 2017, the sweetener in the deal, which perhaps elicited some excitements in the market was the fact that non-OPEC producers may also partake in the production cut by implementing an almost 600,000bpd production cut.

Russia which is expected to lead in this was reported to likely account for about 300,000bpd of that volume alone.

According to the OPEC statement, the cartel recognised that there was an ongoing reduction in the stock overhang, and so in line with the Algiers Accord decided to implement a new production target of 32.5mbpd, in order to accelerate the stock overhang drawdown and then bring the oil market rebalancing forward.

“The agreement will be effective from January 1, 2017. The conference also decided to establish a high-level monitoring committee, consisting of oil ministers, and assisted by the OPEC Secretariat, to monitor the implementation of the agreement.

“Member countries, in agreeing to this decision, confirmed their commitment to a stable and balanced oil market, with prices at levels that are suitable for both producers and consumers,” said the statement.

It added: “In line with recommendations from the high-level committee of the ‘Algiers Accord’, the conference also agreed to institutionalise a framework for cooperation between OPEC and non-OPEC producing countries on a regular and sustainable basis. The conference underscored the importance of other producing countries joining the agreement.”

From Talks to Action

As much as the accord would come into effect at the start of 2017 and then for last six months, with calls for an additional 600,000bpd reduction from non-OPEC suppliers expected to be observed, analysts however, indicated that the success of the cartel’s decision would now depend on how well it is able to execute it.

On the back of this, Bloomberg quoted the Energy Minister of Russia, Alexander Novak, to have said in Moscow that Russia would be willing to ensure the success of the deal and would contribute to the market rebalancing efforts.

Novak, according to Bloomberg, said Russia would cut production by as much as 300,000bpd but “conditional on its technical abilities.”

Similarly, other non-OPEC countries like Mexico would, as indicated by OPEC, be approached to get their buy-in in the deal, which Jeff Currie, an economist and the global head of commodities research at Goldman Sachs Group Inc. told Bloomberg are “incredibly appealing.”

Currie in his analyses stated that the main aim of the cuts was inventory normalisation, and his views were equally shared by Amrita Sen, who is the chief oil analyst at Energy Aspects Ltd.

According to Sen, the production cut was a wake-up call on OPEC’s cynics, who held the view that its decision perhaps had a minimal impact and could not really muster the force to rebalance the oil market.

“This should be a wake-up call for sceptics, who have argued the death of OPEC. The group wants to push inventories down,” Sen said.

While Nigeria and Libya are excused from the OPEC deal on account of both countries’ struggles to recover from previous outages, it was however reported that the cartel could hold another meeting on December 9 with non-OPEC members to firm up their commitment to the deal.

The cartel however indicated that there was a strong and common ground that continuous collaborative efforts among producers within and outside OPEC would complement the market in restoring a global oil demand and supply balance.

It also said it was committed to a stable market, mutual interests of producing nations, an efficient, economic and secure supply to consumers, and a fair return on invested capital of producers.

According to OPEC, countries participating in the deal had opted to do that on the principle of good faith, and through dialogue and cooperation to ensure there would be cohesive, credible, and effective action and implementation.

The decision, it also noted, would be without prejudice to future agreements, while Algeria, Kuwait, Venezuela, and two participating non-OPEC countries would closely monitor the implementation of and compliance with the agreement and report back for future actions.

The cartel also stressed that the agreement was reached following extensive consultations and understanding reached with key non-OPEC countries, thus indicating that it has perhaps marshalled out its strategy to ensure cooperation and compliance.

Comfortable at Mid-$50/b

Notwithstanding, Nigeria which was excused from the deal has said it would be comfortable with oil price levels at a mid-$50 per barrel range.

Shortly before the deal was reached, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, in an interview with Bloomberg said Nigeria would be quite comfortable with the price of crude oil hovering at mid-$50 per barrel.

While indicating that the country’s production volume was gradually growing on account of limited disruption by militants in the Niger Delta region, Kachikwu however, said he was not sure when the current militancy affecting oil and gas production in the region would end, even though the federal government had reportedly made some progress in its attempts to resolve the issues.

He also said, if it rose to $60/b, he would consider it a favour to the country, but that the country would have to work to recover its volumes.

The minister equally maintained that for the country to enjoy the benefits of the OPEC deal, it would have to continue to work on its efforts to find a lasting solution to the militancy in the Delta and grow its production volumes for it.

“Mid $50: $54, $55, $56. If we have a Santa Claus day, then $60, but frankly we are looking to mid $50,” said Kachikwu, in response to a question on what level of oil price the country would consider comfortable.

“I think the Niger Delta issue is a major problem because you simply can’t get a final handle on it until it is resolved and you will never know when it is resolved.

“We have made a lot of progress on that; productions are up – 1.9 million barrel (mb), 1.95mb from the lows of 1.4mb. Militancy attacks are less, an average of one every month as opposed to five to six every week when it first started early in the year,” he explained.

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.

Markets

SEC To Ban Unregistered CMOs From Operating By Month End

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The Securities and Exchange Commission (SEC) says it will stop operations of Capital Market Operators (CMOs) that are yet to renew their registration on May 31, 2021.

This was contained in a circular signed by the management of SEC in Abuja on Monday.

On March 23, SEC had informed the general public and CMOs on the reintroduction of the periodic renewal of registration by operators.

The commission noted that the reintroduction of the registration renewal was due to the need to have a reliable data bank of all the CMOs registered and active in the country’s capital market.

“To provide updated information on operators in the Nigerian Capital Market for reference and other official purposes by local and foreign investors, other regulatory agencies and the general public, to increasingly reduce incidences of unethical practices by CMOs such as may affect investors’ confidence and impact negatively on the Nigerian Capital Market and to strengthen supervision and monitoring of CMOs by the Commission,” SEC explained.

According to the circular, the commission said CMOs yet to renew their registration at the expiration of late filing on May 31, would not be eligible to operate in the capital market.

It explained that CMOs were required to have completed the renewal process on or before April 30, however, the commission said late filing for renewal of registration would only be entertained from May 1 to May 31.

SEC also said that asides from barring the CMOs who failed to comply accordingly, their names would be published on its website and national dailies.

It added that names of eligible CMOs would be communicated to the relevant securities exchanges and trade associations.

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Crude Oil

A Threat to Revenue As Nigeria’s Largest Importer of Crude, India slash Imports By $39.5B

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Nigeria’s revenue earning capacity has come under threat following the reduction of importation of crude oil by India.

India, Nigeria’s largest crude oil importer, reduced crude oil imports by $39.5bn in April, compared to the same time the previous year, data from India’s Petroleum Planning & Analysis Cell showed.

According to the Indian High Commission in Nigeria, India’s crude oil imports from Nigeria in 2020 amounted to $10.03bn.

This represented 17 percent of Nigeria’s total crude exports for the year according to the Nigerian National Petroleum Corporation, as quoted by OilPrice.com.

As Nigeria’s largest importer of crude oil, lockdowns in India’s major cities from the COVID-19 surge in April had ripple effects on Nigeria’s oil sales.

The NNPC was prompted to drop the official standard price of its main export streams, Bonny Light, Brass River, Erha, and Qua Iboe, by 61-62 cents per barrel below its April 2021 prices. They traded at $0.9, $0.8, $0.65, $0.97 per barrel respectively, below dated Brent, the international benchmark, as Oilprice.com showed.

India had been buying the not-too-light and not-too-heavy Nigerian crudes that suited its refiners.

Reuters reported that the Indian Oil Corporation’s owned refineries were operating at 95 percent capacity in April, down from 100 percent at the same time the previous month.

An official at the IOC was quoted as saying, “If cases continue to rise and curbs are intensified, we may see cuts in refinery runs and lower demand after a month.” Hundreds of seafarers risked being stuck at sea beyond the expiry of their contracts, a large independent crude ship owner reportedly told Bloomberg.

India reportedly bought more American and Canadian oil at the expense of Africa and the Middle East, reducing purchases from members of the Organisation of the Petroleum Exporting Countries to around 2.86 million barrels per day.

This squeezed the group’s share of imports to 72 percent from around 80 percent previously, as India’s refiners were diversifying purchases to boost margins, according to Reuters.

India also plans to increase local crude oil production and reduce import expenses as its population swells, according to Bloomberg.

A deregulation plan by the Narendra Modi-led government to boost national production to 40 million tonnes of crude oil by 2023/2024, an increase of almost eight million tonnes, had already been initiated.

According to Business Today, an Indian paper, the country currently imports 82 percent of its oil needs, which amounted to $87bn in 2019.

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Energy

Invest Africa and DLA Piper Partner to Support ESG Best Practice in African Renewable Energy Projects

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Invest Africa - Investors King

The global law firm, DLA Piper, has partnered with Invest Africa, the leading trade and investment platform for African markets, to support the development of ESG best practice in African renewable energy projects.

Clear Environmental, Social and Governance (ESG) targets and measurements have become an increasingly important part of fundraising as investors seek to align their portfolios with sustainable growth. For a continent boasting ample natural resources, this presents a significant opportunity for Africa’s green energy sector. However, renewable does not always equal sustainable and developing and articulating ESG metrics can pose a significant challenge to projects as they prepare investment rounds.

The project will assemble experts from the worlds of impact investment, development finance and law. Across a series of online meetings, participants will discuss strategies to improve ESG practices in African renewable projects from both a fundraising and operational perspective.

Amongst those speaking in the inaugural session on Thursday 13th May are Cathy Oxby, Chief Commercial Officer, Africa GreencoDr. Valeria Biurrun-Zaumm, Senior Investment Manager, DEGOrli Arav, Managing Director – Facility For Energy Inclusion (FEI) – Lion’s Head Global PartnersBeatrice Nyabira, Partner, DLA Piper Africa, Kenya (IKM Advocates) and Natasha Luther-Jones, Partner, Global Co-Chair of Energy and Natural Resources, International Co-Head, Sustainability and ESG, DLA Piper.

Veronica Bolton-Smith, COO of Invest Africa said, “Africa is particularly vulnerable to the impact of climate change despite contributing very little to global emissions. As the price of renewables fall, they will form an ever more important part of Africa’s electrification. In this context, it is essential that projects be given the tools to apply best practice in ESG not only from an environmental perspective but also in terms of good governance, fair working conditions and contribution to social inclusion. I look forward to working closely with DLA Piper on this important topic.”

Natasha Luther-Jones, Global Co-Chair Energy and Natural Resources and International Co-Head Sustainability and ESG at DLA Piper also commented, “Climate change is one of the biggest challenges companies, and people, face today and when we look at its reduction – whether that be in how we power our devices, what we eat or how we dress, where we live or how we work – all roads come back to the need to increase the amount of accessible, and affordable, clean energy. However, renewable energy companies are not automatically sustainable as sustainability is a focus on all ESG factors, not just environmental. We know the need for renewable energy is only going to continue to rise, and therefore so will the number and size of renewable energy companies. The additional challenge is to make sure they are truly sustainable organisations and that’s what we’re excited about discussing during the webinar.”

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