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Stabilising Oil Market with OPEC’s $66.6bn Refineries Investment

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  • Stabilising Oil Market with OPEC’s $66.6bn Refineries Investment

Member countries of the OPEC would need to invest $66.5 billion by 2021 to upgrade their refining capacity to 13.3 million barrels per day (b/d) from which the required products would be supplied to consumers to sustain ongoing market stabilisation efforts of oil producers.

Coming with a recent declaration by its Secretary General, Mohammed Barkindo, that oil would remain important to meeting the world’s energy requirements for a long time, the prospect of this coming to reality would be determined by member countries with significant number of new investments in refineries.

In its latest publication – the World Oil Outlook, OPEC however affirmed that a significant number of new refineries investments could occur in some of its member countries from which about 8mb/d of potential refining projects are expected.

At the moment, OPEC’s 13 members have an installed refining capacity of 12.6mb/d, but that number does not really reflect their actual output. Reports indicate that their actual outputs are 10.8mb/d, and that this is contributed more by the ailing or inefficient refineries of some of its members.

For instance, OPEC’s 2016 Annual Statistical Bulletin indicated that Nigeria’s four refineries with combined capacity of 445,000b/d barely produce up to 21,900b/d, while Iraq with its 900,000b/d barely produce415,000b/d, UAE with 1,124,000b/d does 918,000b/d, and Libya with 380,000b/d produces just about 91,900b/d.

In its report, OPEC however, said that it would expect additional refining capacity from its members to come from condensate splitters, new greenfield and ‘grassroots’ projects, and perhaps capacity expansions at some of the existing refineries.

“The additional refining capacity in OPEC member countries will come from condensate splitters, new greenfield and ‘grassroots’ projects, supplemented by expansions at existing facilities.

“The largest OPEC member countries’ new refineries are mega projects, expected to come on stream during the medium-term period, these are in Kuwait (Al Zour project), Saudi Arabia (Jizan project) and Venezuela (Anzoetagui).

“Other relatively sizable projects with a common trend among crude producers to process heavy crudes domestically and also aiming to satisfy increasing local demand, include new refineries in Lobito, Angola; Manabi (Refinery del Pacifico), Ecuador; Khozestan and Kermanshah projects in Iran; Fujairah and Dubai projects in the UAE,” it said in the report.

It further stated that, “Algeria has chosen to settle for medium capacity refineries in Arzew, Hassi Messaoud and Tiaret to satisfy its growing local refined products demand,” adding however that, “No clear picture can be envisaged yet from projects in Libya.”

Similarly, Barkindo in a recent interview reportedly stated that that there was a positive outlook on global oil demand to rise to over 109mbd by 2040 from 93mbd in 2015.

He said: “This positive outlook, of course, hinges on huge investments being made to not only increase production from new areas, but also to compensate for existing fields on the decline. Between now and 2040, an estimated $10 trillion in oil-related investments will be required and roughly $6 trillion for gas.”

Additional Capacity from Nigeria

Though Nigeria presently imports most of the fuel needed to run her domestic economy following her collapsed domestic refining capacity, there are indications she could add to the capacity required by OPEC before 2021.

OPEC said in the outlook that, “Some capacity expansion could be forthcoming in Nigeria by 2020, either through the rehabilitation of existing refineries – in part to raise their utilisation rates, or through grassroots projects.”

Referring to overtures made by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, on some oil majors to consider investing in Nigeria’s domestic refining sector, the outlook report stated: “In late March, the Nigerian National Petroleum Corporation (NNPC) was reported as being in talks with Chevron, Total and ENI regarding potential assistance to restart and revamp refineries at Port Harcourt, Warri and Kaduna.”

It however stated that the most promising of the capacities that Nigeria could bring on board was the 650,000b/d private refinery being constructed by the Dangote Group in Lagos.

According to it, “Of several possible refining projects, one that may materialise in the medium-term is the grassroots 650,000b/d Dangote refinery and an associated greenfield fertiliser plant in Lagos. If built, this refinery would be Nigeria’s first privately owned and operated refinery.”

It also noted in total, an estimated 0.6mb/d of new crude distillation capacity could come from oil Africa’s oil producers by the end of 2021, adding, “Whether or not the large Dangote project progresses in a timely manner remains a major consideration, as it will affect how much new capacity is in fact brought on-stream in the medium-term.”

Kachikwu, in his proposals to oil majors to invest in refineries in Nigeria, had repeatedly said the country would exit petrol importation in 2019, and that the economic returns on refineries investments in Nigeria were healthy, more so with reported commitment of the government to this.

He once reaffirmed this commitment when he made a presentation to top executives of Italian oil firm, Eni, in Rome, Italy earlier in January, saying: “The attempt by previous governments to privatise refineries and attract investment in refineries failed to yield the required result. The present government had promised to correct this by upgrading old refineries and building new ones, thus increasing local production capacity with an objective to reduce importation of petroleum products by 60 per cent in 2018, and by 2019, to become a net exporter of petroleum products and value added petrochemicals.”

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

Global Markets Near Record Peaks and Will Get Stronger: deVere CEO

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As the FTSE 100 hits 7,000 points for the first time since the Covid pandemic, global stock markets are poised to “get even stronger”, says the CEO of one of the world’s largest independent financial advisory and fintech organisations.

The observation from Nigel Green, the chief executive and founder of deVere Group, comes as London’s index jumped over the important threshold in early trading in London, gaining over 0.5% to 7024 points.

Mr Green notes: “London’s blue-chip index is up 40% since the worst lows of the pandemic.

“This landmark moment represents the wider optimistic sentiment gripping global markets which are near record peaks.

“We can expect global stock markets to get even stronger as investors look to seize the opportunities from economies reopening.

“They are looking towards economies rebounding in a post-pandemic era due to the monetary and fiscal stimulus, pent-up cash and demand, and strong corporate earnings.

“The current ultra-low interest rate environment and the under-performance of bonds will also act as a catalyst for stock markets.”

However, the CEO’s bullish comments also come with a warning.

“I would urge investors to proceed with caution as there are some headwinds on the horizon, including relations between the U.S. and China, the world’s two largest economies, which could be coming to a tipping point in coming weeks.

“As such, in order to capitalise on the opportunities and mitigate risks, investors must ensure proper portfolio diversification.”

Mr Green concludes: “A variety of factors are going to drive global stock markets. Investors will not want to miss out and should work with a good fund manager to judiciously top-up their portfolios.”

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Refinitiv Expands Economic Data Coverage Across Africa

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Building on its commitment to drive positive change through its data and insights, Refinitiv today announced the expansion of its economic data coverage of Africa. The new data set allows investment managers, central bankers, economists, and research teams to use Refinitiv Datasteam analytical data for detailed exploration of economic relationships and investment opportunities among data series covering the African continent.

Securing reliable, detailed, timely, locally sourced content has not been easy for economists who have in the past had to use international sources which often can take many months to update and opportunities to monitor the market can be missed. Because Africa is a diverse continent, economists and strategists need more timely access to country-specific data via national sources to create tailored business, policy, trading and investment strategies to meet specific goals.

Africa continues to develop critical infrastructure, telecommunications, digital technology and access to financial services for its 1.3bn people. The World Bank estimates that over 50% of African inhabitants will be under 25 by 2050. This presents substantial opportunities for investors who can spot important trends and make informed decisions based on robust and timely economic data.

Stuart Brown, Group Head of Enterprise Data Solutions, Refinitiv, said: “Africa’s growing, dynamic and fast evolving economies makes it a focal point for financial markets today and in the coming decades.  As part of LSEG’s commitment to empowering the global markets with accurate and timely data, we are excited about making these unique datasets available via the Refinitiv Data Platform. Our economic data coverage of Africa will provide our customers with deeper and broader inputs for macroeconomic analyses and enable more effective investment strategies and economic research.”

Refinitiv Africa economic data coverage:

  • Africa economics content comprises around 500,000 nationally sourced time series data covering 54 African nations
  • Content is sourced from national statistical offices, central banks and other key national institutions
  • The full breadth of economics categories in Datastream including national accounts, money and finance, prices, surveys, labor market, consumer, industry, government and external sectors
  • International sources including OECD, World Bank, IMF, African Development Bank, Oxford Economics & more provide comparable data & forecasts across the continent

Refinitiv® Datastream® has global macroeconomics coverage to analyze virtually any macro environment, and better understand economic cycles to uncover trends and forecast market conditions. With over 14.2 million economic times series map trends, customers can validate ideas and identify opportunities using Refinitiv Datastream. Access its powerful charting tools, 9,000 pre-built chart templates and chart studies for commonly used valuation, performance, and technical and fundamental analysis.

 Refinitiv continually grows available data – the China expansion in 2019 covered a unique combination of economic and financial indicators. Refinitiv plans to expand Southeast Asia covering Thailand, Vietnam, Philippines and Malaysia with delivery expected in 2021. This ensures that Refinitiv will have much needed emerging market economic content.

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Oil Rises on Drawdown in U.S. Oil Stocks, OPEC Demand Outlook

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Oil prices rose in early trade on Wednesday, adding to overnight gains, after industry data showed U.S. oil inventories declined more than expected and OPEC raised its outlook for oil demand.

Brent crude futures rose 28 cents, or 0.4%, to $63.95 a barrel at 0057 GMT, after climbing 39 cents on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures similarly climbed 28 cents, or 0.5%, to $60.46 a barrel, adding to Tuesday’s rise of 48 cents.

Oil price gains over the past week have been underpinned by signs of a strong economic recovery in China and the United States, but have been capped by concerns over stalled vaccine rollouts worldwide and soaring COVID-19 infections in India and Brazil.

Nevertheless, the Organization of the Petroleum Exporting Countries (OPEC) tweaked up its forecast on Tuesday for world oil demand growth this year, now expecting demand to rise by 5.95 million barrels per day (bpd) in 2021, up by 70,000 bpd from its forecast last month. It is banking on the pandemic to subside and travel curbs to be eased.

“It was a welcome prognosis by the market, which had been fretting about the impact the ongoing pandemic was having on demand,” ANZ Research analysts said in a note.

Further supporting the market on Wednesday, sources said data from the American Petroleum Institute showed crude stocks fell by 3.6 million barrels in the week ended April 9, compared with estimates for a decline of about 2.9 million barrels from analysts polled by Reuters.

Traders are waiting to see if official inventory data from the U.S. Energy Information Administration (EIA) on Wednesday matches that view.

Market gains are being capped on concerns about increased oil production in the United States and rising supply from Iran at a time when OPEC and its allies, together called OPEC+, are set to bring on more supply from May.

“They may have to contend with rising U.S. supply,” ANZ analysts said.

EIA said this week oil output from seven major shale formations is expected to rise by 13,000 bpd in May to 7.61 million bpd.

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