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Supply Cuts Won’t Re-Balance Market Until Second Half – OPEC

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Nigerian oil earnings
  • Supply Cuts Won’t Re-Balance Market Until Second Half

OPEC said its agreement to cut production, while speeding up the re-balancing of the global oil market, won’t result in demand exceeding supply until the second half of next year.

The Dec. 10 agreement between the Organization of Petroleum Exporting Countries and non-members such as Russia and Kazakhstan “will accelerate the reduction of global inventories and bring forward the re-balancing of the oil market to the second half of 2017,” OPEC said in its monthly report Wednesday. It’s a more pessimistic outlook than that published Tuesday by the International Energy Agency, which indicated a supply deficit in the first half.

Oil prices have climbed about 16 percent since OPEC announced its first production cuts in eight years on Nov. 30 as it seeks to end a three-year glut that the group admits lasted longer than it expected. The accord was widened on Dec. 10 when 11 non-members signed up as well.

Despite a commitment from those countries to lower their output in the first half by 600,000 barrels a day, the organization slightly increased forecasts for supplies from outside OPEC in 2017. It estimates that production in Russia, which pledged half of the non-OPEC cut, and in Kazakhstan, which also agreed to cut, will remain steady for the six months covered by the deal. The report doesn’t state whether the estimates take into account the most recent agreement.

The non-OPEC growth forecast was increased by about 100,000 barrels a day, to 300,000 a day, “due to higher price expectations for 2017,” according to the report, produced by the bloc’s Vienna-based secretariat. The organization kept forecasts for U.S. supply in 2017 unchanged.

The group said its own output climbed 150,800 barrels a day to 33.87 million a day in November, as Nigeria and Libya — which are both exempt from any obligation to cut — restored some of their disrupted supplies. This implies that, in order to meet the group’s target of 32.5 million barrels a day, the other nations would need to make deeper cuts than originally agreed.

Another complication for the deal may come from the group’s revision of October output levels, which were used as the reference points for the accord. Production in Saudi Arabia, the biggest and most influential member, was assessed by the organization at 10.56 million barrels a day in October, higher than its reference level of 10.54 million.

The organization has created a monitoring committee, composed of three members and two non-members, to ensure compliance with the agreement.

Production data submitted directly by members, which is also included in the report, continued to show a discrepancy with the group’s own estimates. While data from Iraq, Iran and Venezuela have regularly differed, this month’s report showed a wider disparity for Saudi Arabia. The kingdom told OPEC it produced 10.72 million barrels a day in November, about 200,000 a day more than OPEC’s own assessment.

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

COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

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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.

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Commodities

Crude Oil, Other Commodities Closing Price for Monday

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Crude oil

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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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.

The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.

According to Michael McCarthy, the Chief Market Strategies, CMC Markets, the surged in gold price is a result of the projected drop in dollar value or uncertainty.

He said, “The key factor appears to be the (U.S.) currency.”

As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.

Also, the effectiveness of the vaccines can not be ascertained until wider rollout.

Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.

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