We talked in the wake of the OPEC deal over a week ago. Now we have a non-OPEC adherence to the deal. How much of a floor under the oil price which is about $50 dollars do you hope to create?
Certainly, the aspiration is to get as close to $60 a barrel as we can. It’s a tall order but I think all the numbers are trending towards that given the fact that we haven’t even started executing the cut itself. This is just the momentum building on the back of the agreement. Everyone is hoping that we can get closer to $60. You want to keep the price within the $60 range. If it gets too high it becomes a problem in its own right.
You gave me a great answer in Vienna about cheating. I very blatantly asked you, “what about the cheating?” People don’t trust the levels historically set by OPEC. You said to me this time it’s different. I wonder if you could just share that because I think one of the big concerns people have would be about adherence to this deal, but you think its different this time.
I think it’s different because in the past you tended to force countries towards a coalition or towards a resolution. This time there’s a major consensus. Everybody’s hurting. Everybody has realised that it needs to be done for most of OPEC and indeed for non-OPEC economies to survive. There hasn’t been too much of beating people into line, it’s been more of a consensual build up. Secondly, there’s a group that has been set up to monitor this. Both the Opec and Non-Opec countries understand that both sides will have to keep to the deal otherwise, it will falter. I think the urgency of now, and the criticality of the economies that they have to protect is enough of an incentive for everyone to be in line this time.
What worries you most about the part of this story that OPEC cannot control. Clearly some non-OPEC countries have signed up to the bill at this point but obviously, there are risks around how the shale producers may ramp up production in the light of a headline oil price increase. Is that the main worry and why the deal is so short or are there other things that concern you?
Certainly, the shale issue is a major one, because if shale begins to mop up production heavily and begins to cut into the share of traditional shares or percentages of most OPEC members you’re going to see some reaction. Secondly, if other non-OPEC countries don’t come on board as rapidly as some have and decide to take advantage of it while continuing to amass their production that could lead to a price fall. Everybody is on the edge. Watching to make sure both sides keep to the deal whether they be OPEC and non-OPEC. Within OPEC we’re also very determined to make sure that we keep to the deal. Saudi Arabia has shown a great sense of leadership and momentum trying to rally everybody back from the initial policy and into a court zone. But like all associations where everything is hinged on perfect delivery, if anyone slips out of the boat they are creating a problem. We’re hoping that at the end of the day people realise that there’s a need to stay on board.
Is it a source of regret for you and for your government that there wasn’t the will or the ability to do this 18 months ago; that the Saudis weren’t prepared to drive this deal back then?
In some sense yes. Nigeria certainly hurt without that oil money so we would have liked to see this come to fruition very early, and I’m sure we would not have gone into recession if we had this deal in play on time. But having said that the reality of the Saudi lesson is that is they didn’t put this on board, if they didn’t drive everyone to understand that OPEC cannot be the can carrying entity, the ability to bring non-OPEC members on board would have been limited. We might have had a short-term loss, but I think in the long term it will be better for everyone that we went through that cycle.
You just made some nice comments about the Saudis then, but do you think there was a real question mark on the relevance of OPEC and that the Saudis have done the right thing by shouldering the weight of these production cuts to get OPEC back into the game, to be seen as relevant to the oil market?
Within OPEC itself we always believed OPEC was relevant, and the fact that the whole world looked to us even though we’re only a 40 per cent producer in the oil market made us always believe we were relevant. Outside of OPEC there were some credibility issues. Would we survive? Would we ever come back together? Would we ever be able to use the cartel power in ways that we did before? And I think Saudi coming back and rallying everyone with some huge numbers helped bring back the credibility and certainly convinced the likes of Russia to come on board.
Can I ask you what happens in six months time because while you have an exception right now there might be pressure if there’s another deal in 6 months time if the market has not been rebalanced for those who had exceptions to be included in a new OPEC deal? How do you feel about that? Do you feel the pressure to get the market right in your own country and be a willing player to cut production in 6 months time?
I think this is just the start of our momentum, and the thing we did in Vienna wasn’t a one-off. We agreed to continue to consult to make this wider body a monitoring instrument. It means that in 6 months time when this should be due for another review, if we feel that the market has not balanced enough, more cuts may be coming. But again that’s going to depend on what has happened in shale production. If within that period we find that what all shale producers have done is simply inch into the market and continue to ramp up volumes then there may be some question marks there.
You flew to Delhi in between these meetings and you signed a memorandum of understanding with the Indians to give them a large percentage of Nigerian production going forward as well. How sensitive are key buyers of your product from China to India to the price of oil at say $58 to $63? You say $60 would be the ideal number for you, but I wonder what that does to lessen the ability of the market to balance itself if it was at $60 rather than at $40.
My experience in India was that the price sensitivity became very high once we began to cross the 60 number. Countries are going to continue to deepen their ability to look for alternatives and look for how to save costs by virtue of limiting their consumption. That’s going to be an on-going thing and OPEC is going to have to deal with in the long term. On the whole I think that everyone realises that for investments to continue in these countries and for oil to even get produced at all. Some sensible number is needed otherwise investments will dry up like they have over the last 18 months. So the deal with India, which we still haven’t signed. We’re just trying to dot our Is and cross our Ts. All we’ve done so far is sign a statement of intent. But, there is a good appetite for Nigerian oil in Asian countries. There is obviously consciousness on the part of Nigeria with the sensitivity of pricing and I think that once we begin to cross the $60 margin, you’re going to begin to see some of the old reactions again.
When is Nigeria going to realise a post-oil strategy which is going to benefit its population?
A lot of things have gone wrong, and a lot of things could have been done better. We’ve lost many years of income that could have been applied to many sectors, so there’s a race against time. We are trying to restructure the economy and move more to agriculture and services. The contribution of those sectors to our GDP is increasing by the day. But the more important thing is that oil got us here positively and negatively and oil is also going to get us out of it so the first discipline that we need to do is clean up our oil sector. We need to make sure that the right incentives are there, eliminate corruption, and begin to grow refineries. Thirty per cent of our foreign exchange burden is on the importation of refined petroleum products and for a country that has produced billions and billions of barrels of oil to not have functional refineries is regrettable, but that’s something that we’re very focusing on right now.
At $60 a barrel, what growth rates do you expect Nigeria to see in 2017?
Well as you know Nigeria has been in recession for the last 6-8 months. If we can round out 2017 with a growth rate of 4-5% I think we will be delighted
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.
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.
Crude Oil Holds Steady Above $55 Per Barrel on Tuesday
Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.
Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.
While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.
On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”
“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.
Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.
Crude Oil Pulled Back Despite Joe Biden Stimulus
Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.
Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.
On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.
OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”
“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”
Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.
“The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.
Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.
But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.
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