- Oil Pact Could Quickly Sop up Market Glut
A pact by leading producers to cut output could quickly begin sopping up the glut on the oil market that has weighed on prices, the IEA said Tuesday as it also hiked its demand forecast.
The agreements, if implemented, would “hasten the market’s return to balance by working off the inventory overhang,” said the International Energy Agency, which analyses energy markets for major oil consuming nations.
The recent deals are the first joint cuts by OPEC and non-OPEC nations since 2001 and aim to reduce production by just under 1.8 million barrels per day (mbd).
“If OPEC and non-OPEC were to implement strictly their agreed cuts, global inventories could start to draw in the first half of next year,” it added.
The IEA said it was not making any forecast, but suggested that implementation of the pact could result in a draw of 0.6 mbd into stocks.
Oil stocks in the advanced nations which fund the IEA hit a record of 3,102 mb in July.
While they have since declined, “they remain 300 mb above the five-year average, providing a more than ample cushion going into 2017”, said the IEA.
– ‘Implicit goal’ –
The IEA also said that “an implicit goal” of the pact may be “to keep the price of oil from falling below $50” per barrel.
Crude oil prices have risen by around $10 per barrel in recent weeks on the deals by the OPEC and non-OPEC nations.
The benchmark international contract, Brent crude, was trading at around $55.99 per barrel in late morning on Tuesday, around 50 cents up from its level ahead of the report.
“Clearly, the next few weeks will be crucial in determining if the production cuts are being implemented and whether the recent increase in oil prices will last,” said the IEA.
A price of $50 per barrel is seen as the level at which it becomes profitable for many companies to produce oil.
Oil exporting nations have been suffering with prices under that level, even dropping below $30 per barrel at the beginning of this year, as Saudi Arabia led OPEC nations in stepping up output in order gain market share and push rivals with higher production costs out of business.
The IEA found that production increases by OPEC nations continued into November, rising by 300,000 bpd to 34.2 mbd. November output by OPEC nations was 1.4 mbd above that one year ago.
The cartel currently accounts for around 40 percent of total output.
At a meeting last weekend in Vienna, 11 non-members of OPEC agreed cut of production by 558,000 barrels per day, joining an earlier pledge by OPEC nations to cut output by 1.2 mbd for six months.
The IEA said analysis of the market outlook for 2017 was complicated by the fact that OPEC will review in May whether to extend the output cuts.
It said “OPEC also appears to be signalling that high-cost producers should not take for granted that they will receive a free ride to higher production”.
The IEA noted however that US shale producers, the higher-cost producers that OPEC squeezed via low oil prices, appear to be stepping up investment, but made only marginal increases to its forecasts for North American output.
– Demand growth –
While supply will be restrained by the pact between leading oil producers, growth in oil demand has been stronger than forecast.
“Global oil demand growth of 1.4 mbd is foreseen for 2016,” said the IEA, which is an increase of nearly 10 percent from its previous forecast and due in part to “robust demand” in the United States.
Demand growth in 2017 is now seen at 1.3 mbd, up from its previous forecast of 1.2 mbd.
That is still considerably below the five-year high of 1.8 mbd in demand growth registered in 2015.
The Drop in US Crude Oil Inventories Boosted Oil Prices on Wednesday
Crude oil prices rose on Wednesday following a decline in US crude inventories last week.
The American Petroleum Institute (API) had reported that United States crude oil inventories declined by 5.3 million barrels in the week ended January 22, 2021, more than a reduction of 430,000 barrels predicted by a Reuters poll.
The unexpected decline, coupled with slowing new COVID-19 cases in China, the world’s largest importer of crude oil, boosted oil prices on Wednesday.
Brent crude, against which Nigerian crude oil is measured, rose by 41 cents or 0.7 percent to $56.32 per barrel.
The U.S. West Texas Intermediate (WTI) crude oil also gained 56 cents or 1 percent to $53.17 a barrel.
“WTI is slightly firmer on the back of a larger-than-expected draw in US crude inventories reported by the API, which is offset by builds in gasoline and distillates,” said Vandana Hari, oil market analyst at Vanda Insights.
The data, however, showed petrol inventories grew by 3.1 million barrels in the week, more than experts projected.
Similarly, API data revealed that distillate fuel inventories that include diesel and heating oil, jumped by 1.4 million barrels, far higher than the 361,000 barrels decline predicted. However, refinery runs declined by 76,000 barrels per day.
“Market participants are now in ‘wait and see’ mode, wanting to see how lockdowns evolve in the coming weeks and months, and how successful countries are in rolling out Covid-19 vaccines,” ING economics said in a note.
COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020
Nigeria’s oil revenue declined by 41.44 percent in the first nine months of 2020 to $2.033 billion, according to the latest data from the Nigerian National Petroleum Corporation, NNPC.
This represents a decline of 41.44 percent from $3.47 billion filed in the same period of 2019 when there was no COVID-19.
In the September 2020 edition of NNPC’s Monthly Financial and Operations Report (MFOR), revenue from oil and gas rose by 16 percent to $120.49 million in the month of September, a 66 percent or $234.81 million drop from $355.3 million posted in the same month of 2019.
The global lockdowns caused by the COVID-19 pandemic plunged Nigeria’s crude oil sales and global demand for the commodity. This was further compounded by Nigeria’s high cost of production compared to Saudi Arabia, Russia and others that were offering discounts to boost sales during one of the most challenging periods in human history.
Experts like Prof. Yinka Omorogbe, President of Nigeria Association of Energy Economics, NAEE, were not surprised with the drop in earnings given the effect of COVID-19 on the world’s economy.
She, however, called for the revamp of the nation’s petroleum sector laws and diversification of the economy away from oil revenue dependence. She said “Covid-19 made 2020 a very hot year and it battered the oil industry internationally and we are not an exception; so we could not have been unaffected”.
She also said the effect of the fall “is definitely a wake-up call; we have to diversify, strengthen our other resources and capabilities”.
Omorogbe, a former NNPC Board Secretary, urged the government and the operators in the sector to look inward and think strategically, stating: “think medium term, think of where they want to be and the government, above all, must think of how best we can utilize our resources, so that we can achieve our objectives once we know and define them.
“It is a clear wake-up call, if not we will just sit here and find that we have become one of the poorest nations in the world”, she noted.
Crude Oil, Other Commodities Closing Price for Monday
Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.
Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.
The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.
Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.
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