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Risks to New oil Deal – Kachikwu

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As producers hope to improve the market for oil prices, Emmanuel Ibe Kachikwu, Nigeria’s Minister of State for Petroleum Resources, joins CNBC to look at the risks that could impact recent oil deals.

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

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Crude Oil

Dangote Mega Refinery in Nigeria Seeks Millions of Barrels of US Crude Amid Output Challenges

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The Dangote Mega Refinery, situated near Lagos, Nigeria, is embarking on an ambitious plan to procure millions of barrels of US crude over the next year.

The refinery, established by Aliko Dangote, Africa’s wealthiest individual, has issued a term tender for the purchase of 2 million barrels a month of West Texas Intermediate Midland crude for a duration of 12 months, commencing in July.

This development revealed through a document obtained by Bloomberg, represents a shift in strategy for the refinery, which has opted for US oil imports due to constraints in the availability and reliability of Nigerian crude.

Elitsa Georgieva, Executive Director at Citac, an energy consultancy specializing in the African downstream sector, emphasized the allure of US crude for Dangote’s refinery.

Georgieva highlighted the challenges associated with sourcing Nigerian crude, including insufficient supply, unreliability, and sometimes unavailability.

In contrast, US WTI offers reliability, availability, and competitive pricing, making it an attractive option for Dangote.

Nigeria’s struggles to meet its OPEC+ quota and sustain its crude production capacity have been ongoing for at least a year.

Despite an estimated production capacity of 2.6 million barrels a day, the country only managed to pump about 1.45 million barrels a day of crude and liquids in April.

Factors contributing to this decline include crude theft, aging oil pipelines, low investment, and divestments by oil majors operating in Nigeria.

To address the challenge of local supply for the Dangote refinery, Nigeria’s upstream regulators have proposed new draft rules compelling oil producers to prioritize selling crude to domestic refineries.

This regulatory move aims to ensure sufficient local supply to support the operations of the 650,000 barrel-a-day Dangote refinery.

Operating at about half capacity presently, the Dangote refinery has capitalized on the opportunity to secure cheaper US oil imports to fulfill up to a third of its feedstock requirements.

Since the beginning of the year, the refinery has been receiving monthly shipments of about 2 million barrels of WTI Midland from the United States.

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Crude Oil

Oil Prices Hold Steady as U.S. Demand Signals Strengthening

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Crude Oil - Investors King

Oil prices maintained a steady stance in the global market as signals of strengthening demand in the United States provided support amidst ongoing geopolitical tensions.

Brent crude oil, against which Nigerian oil is priced, holds at $82.79 per barrel, a marginal increase of 4 cents or 0.05%.

Similarly, U.S. West Texas Intermediate (WTI) crude saw a slight uptick of 4 cents to $78.67 per barrel.

The stability in oil prices came in the wake of favorable data indicating a potential surge in demand from the U.S. market.

An analysis by MUFG analysts Ehsan Khoman and Soojin Kim pointed to a broader risk-on sentiment spurred by signs of receding inflationary pressures in the U.S., suggesting the possibility of a more accommodative monetary policy by the Federal Reserve.

This prospect could alleviate the strength of the dollar and render oil more affordable for holders of other currencies, consequently bolstering demand.

Despite a brief dip on Wednesday, when Brent crude touched an intra-day low of $81.05 per barrel, the commodity rebounded, indicating underlying market resilience.

This bounce-back was attributed to a notable decline in U.S. crude oil inventories, gasoline, and distillates.

The Energy Information Administration (EIA) reported a reduction of 2.5 million barrels in crude inventories to 457 million barrels for the week ending May 10, surpassing analysts’ consensus forecast of 543,000 barrels.

John Evans, an analyst at PVM, underscored the significance of increased refinery activity, which contributed to the decline in inventories and hinted at heightened demand.

This development sparked a turnaround in price dynamics, with earlier losses being nullified by a surge in buying activity that wiped out all declines.

Moreover, U.S. consumer price data for April revealed a less-than-expected increase, aligning with market expectations of a potential interest rate cut by the Federal Reserve in September.

The prospect of monetary easing further buoyed market sentiment, contributing to the stability of oil prices.

However, amidst these market dynamics, geopolitical tensions persisted in the Middle East, particularly between Israel and Palestinian factions. Israeli military operations in Gaza remained ongoing, with ceasefire negotiations reaching a stalemate mediated by Qatar and Egypt.

The situation underscored the potential for geopolitical flare-ups to impact oil market sentiment.

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Crude Oil

Shell’s Bonga Field Hits Record High Production of 138,000 Barrels per Day in 2023

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Shell Nigeria Exploration and Production Company Limited (SNEPCo) has achieved a significant milestone as its Bonga field, Nigeria’s first deep-water development, hit a record high production of 138,000 barrels per day in 2023.

This represents a substantial increase when compared to 101,000 barrels per day produced in the previous year.

The improvement in production is attributed to various factors, including the drilling of new wells, reservoir optimization, enhanced facility management, and overall asset management strategies.

Elohor Aiboni, Managing Director of SNEPCo, expressed pride in Bonga’s performance, stating that the increased production underscores the commitment of the company’s staff and its continuous efforts to enhance production processes and maintenance.

Aiboni also acknowledged the support of the Nigerian National Petroleum Company Limited and SNEPCo’s co-venture partners, including TotalEnergies Nigeria Limited, Nigerian Agip Exploration, and Esso Exploration and Production Nigeria Limited.

The Bonga field, which commenced production in November 2005, operates through the Bonga Floating Production Storage and Offloading (FPSO) vessel, with a capacity of 225,000 barrels per day.

Located 120 kilometers offshore, the FPSO has been a key contributor to Nigeria’s oil production since its inception.

Last year, the Bonga FPSO reached a significant milestone by exporting its 1-billionth barrel of oil, further cementing its position as a vital asset in Nigeria’s oil and gas sector.

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