- U.S. Shale Surge Threatens OPEC Strategy
OPEC’s Nov. 30 output agreement to cut production by 1.2 million barrels a day may have put a floor under the oil price, but has also awakened U.S. shale.
Exploration and production companies have added 77 rigs this year to Feb. 24, according to the latest figures from Baker Hughes, while U.S shale production is forecast to reach about 4.87 million barrels a day in March, according to the Energy Information Administration’s latest Drilling Productivity Report.
That’s the highest since May 2016. Estimates of just how much shale will be added over this year range from as high as 900,000 barrels a day by Macquarie and Rystad Energy to a more modest 400,000 barrels a day by JP Morgan Asset Management.
E&Ps are also gaining access to capital in 2017. “The combination of a collapse in the cost of borrowing and increased hedging opportunities following the latest price rally has put U.S. shale oil producers back in business,” Ole Hansen, chief commodity strategist at Saxo Bank, said in an e-mail to Bloomberg Briefs on Feb.15. “Instead of cutting cost to meet the punitive borrowing cost witnessed a year ago they can now look ahead and begin making plans to expand production.”
Booming shale isn’t the only problem for OPEC. Crude stockpiles hit 518.6 million barrels in the week ended Feb. 17, according to the EIA. This is the highest level since the EIA began compiling weekly data in 1982.
U.S. crude production isn’t slowing down either. Since September, output has been rising at an average rate of 93,000 barrels a day, according to Bloomberg Oil Strategist Julian Lee, and is now back above 9 million barrels a day.
Still, all is not lost. OPEC’s Nov. 30 deal to cut production by 1.2 million barrels a day — led by Saudi Arabia — at present appears to be holding. January production figures from the organization (depicted by the blue bars), shows about 90 percent compliance with agreed production levels (depicted by the pink bars).
The question on everyone’s lips now is: Will OPEC extend the cuts after six months?
World Bank Lauds Kogi’s 2020 Financial Statement
The World Bank has heaped praise on the Government of Kogi State concerning the state’s audited financial statement for 2020. The financial institution was said to have described the financial report as a standard to look up to concerning transparency and accountability in the public sector.
In a statement which was dated November 21, 2021 it was said that the bank made the commendation in a letter which was sent to the Accountant General of the state.
As said in the statement, the letter which was taken by the Kogi State Accountant General on November 2025 was signed by Deborah Hannah Isser, the Task Team Leader of the States Fiscal Transparency, Accountability and Sustainability Programme (SFTAS), Nigeria Country Office, Western and Central African Region.
SFTAS is a $750 million programme which has been set up to reward states for meeting any or every one of the indicators which demonstrate improvements in fiscal transparency, sustainability and accountability.
The indicators, which are nine in number were a byproduct of the former Fiscal Sustainability Plan of the federal government where States would be rewarded for meeting up to 22 targets.
The World Bank had previously backed the federal government to give incentives to the states in order to properly execute the 22-point Fiscal Sustainability Plan, which has now gone under a revamp as the nine Disbursement Linked Indicators under SFTAS.
Some of the criteria on which judgement will be based on are: improvement in financial reporting and budget reliability, improved cash management, increased openness, citizen participation in the budget process, reduced revenue leakages through the execution of State Treasury Single Account (TSA), a strengthened Internally Generated Revenue (IGR) collection, biometric registration and Bank Verification Number (BVN) used to reduce payroll fraud.
The World Bank commended the Kogi State government for preparing its audited financial statements in line with the basis of the International Public Sector Accounting Standards.
Nigeria’s Rigid Forex Policy Discouraging Investors, Fueling Inflation – World Bank
The World Bank has blamed the Central Bank of Nigeria’s rigid forex policy for the drop in Nigeria’s capital importation and rising inflation rate.
The bank disclosed in its November report, Nigeria Development Update.
Explaining modalities for its position, the World Bank stated that there had been constant pressure on the Nigerian Naira with the current forex policy, forcing the central bank to consistently increase its nominal official exchange rate in an effort to ease some of the pressure.
This, it blamed on the rigid foreign exchange management system of the Central Bank of Nigeria, saying the system has also been responsible for the rising inflation rate in Nigeria.
The report read in part, “The government’s exchange rate management policies continue to discourage investment and fuel inflation. Exchange rate stability is a key CBN policy objective, and to preserve its external reserves the CBN continues to manage FX demand and limit the supply of FX to the market.
“Pressure on the naira remains intense, and while the CBN has raised the nominal official exchange rate three times since the start of the pandemic (by 15 per cent in March 2020, five per cent in August 2020, and seven per cent in May 2021), FX management remains too rigid to respond to external shocks. Meanwhile, exchange-rate management has emerged as one of the key drivers of inflation.”
The World Bank further stated that the central bank foreign exchange system needs to be more flexible to withstand external shocks, especially given Nigeria’s mono-product nature. It added that the NAFEX rate does not reflect the true market rate but the central bank managed rate.
It read in part, “While the CBN supplied an average of $2.5bn to the Investors and Exporters forex window in the months just prior to the COVID-19 crisis, it only supplied an average of $0.5bn in the months thereafter.
“The NAFEX rate, which is now the guiding exchange rate for the economy, continues to be managed and is not fully reflective of market conditions. The parallel market premium over the NAFEX rate reached 29 per cent in August 2021 after the CBN cut off its weekly supply of $20,000 per bureau de change. The CBN has intermittently supplied forex to BDCs since 2005, providing ample opportunities for currency round-tripping.”
The institution however advised that Nigeria adopt a more predictable, transparent and flexible foreign exchange management system in order to attract and sustain private investment flows.
Nigeria’s Non-oil Revenue Now N1.15 Trillion – Minister of Finance
Mrs. Zainab Ahmed, the Minister of Finance, Budget and National Planning, has said that Nigeria’s non-oil revenue is now N1.15 trillion, representing 15.7 percent above the country’s target. This, she claimed, was a result of the federal government’s efforts at diversifying the nation’s economy.
Mrs. Ahmed disclosed this at the Institute of Directors (IoD) 2021 Annual Directors Conference which was held on Wednesday in Abuja.
According to the News Agency of Nigeria (NAN) the event with the theme: “Creating the Future: Deepening the Corporate Governance Practice through Multi-Sectoral and Multi-Generational Collaborations,” was meant to discuss economic development.
Mrs Ahmed added that the recent development was in line with President’s commitment to further diversifying the Nigerian economy which is heavily dependent on oil. She observed that Nigeria was showing resilience in recovery from recession from coronavirus (COVID-19) pandemic which intensely affected global economies.
The minister said the federal government alongside the private sector had implemented a wide range of monetary measures to stimulate economic recovery, growth and development, job creation and improved standards of living.
She also explained that the government was doing everything to improve and diversify Nigeria’s revenue generation.
“Nigeria was quickly able to exit recession and is on her way to path of sustainable growth and we are intensifying efforts to grow and diversify our revenue sources to grow revenue from the current 8 per cent.”
“Our non-oil revenues have grown to N1.15 trillion, representing 15.7 per cent above set target. We are working on the 2021 finance bill and it’s nearing completion. Also, the recent approval of the medium-term national development plan is an important milestone of Buhari’s commitment to delivering sustainable growth and we require strong support and monitoring during implementation,” she said.
Mrs Ahmed reinforced the government’s decision to do something about infrastructure and reduce the cost of production for businesses in the country.
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