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Nigeria’s Proposed Sale of Oft-Bombed Oil Assets Won’t Be Easy

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  • Nigeria’s Proposed Sale of Oft-Bombed Oil Assets Won’t Be Easy

Nigerian President Muhammadu Buhari’s government on March 7 proposed a plan to jump start the economy by, among other things, selling stakes in joint-venture oil projects within the next three years. Given a militancy escalation that blighted those very assets last year, and previous struggles to privatize state businesses, analysts inside and outside the west African country say such sales won’t be straightforward.

“Nigeria’s track record on privatization and divestments has not exactly been the best, so people are probably going to greet this news with a certain degree of skepticism and I think rightly so,” Manji Cheto, a West Africa specialist at Teneo Intelligence in London, said by phone. “I don’t think this is going to be a process that’s speedy.”

Normally Africa’s biggest producer, Nigeria has been among the world’s hardest-hit supplier nations over the past year due to the militant attacks that crushed its output while prices remained half what they were in mid 2014. At the same time, its reduced flows have helped limit a global crude glut, bolstering OPEC and other nations dependent on revenue from selling the commodity.

The oil ministry and Nigeria National Petroleum Corp. didn’t respond to multiple calls and emails requesting comment.

Smaller Stakes

The oil asset-sale plan starting this year through 2020 would reduce the average 55 percent stake Nigeria holds in joint ventures with Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA, which produce about 90 percent of its crude.

Previous privatizations included power assets, a process that Nigerian Senate President Bukola Saraki said in February had “failed” to improve domestic access to power as planned. In 2010, the West African nation halted the sale of Nigerian Telecommunications Ltd., also known as Nitel, and opted to liquidate the company after failing to find a buyer for the former monopoly. It’s also struggled to secure outside investment in its refineries.

The government has traditionally been reluctant to sell crude assets. Existing plans aim to increase oil production to 2.5 million barrels a day by 2020 after falling to about 1.4 million last year, the lowest level in almost three decades. Such an increase could boost government revenue by 800 billion naira ($2.53 billion) annually and fund a revamp of domestic refineries. Lowering its stakes would diminish any windfall from a recovery in output and prices.

Unwilling Seller

“Many within the government do not really want to let go of oil assets, but the current reality may be slowly beginning to change that thinking,” said Cheta Nwanze, head of research at Lagos-based risk advisory SBM Intelligence. “This proposal represents an adjustment to a new economic normal and not a glowing embrace of market forces.”

Nigeria’s militant threat hasn’t gone away, either. While the government has stepped up engagement with community leaders and proposed restoring the budget to pay former fighters, the Niger Delta Avengers threatened earlier this year to widen attacks. The group was responsible for most pipeline sabotage last year.

The African country is also part way through five years of $5.1 billion in payments — in the form of crude sales — to oil companies to reimburse them for past operating costs.

“I imagine international oil companies will treat any additional equity stakes offered to them with a healthy dose of caution given the severe production disruptions of 2016 and the fact that the NNPC still owes substantial sums to their venture partners,” said Charles Swabey, an oil and gas analyst at BMI Research.

Good Assets

Nigeria reducing its average stake to 40 percent from 55 percent would be seen as ideal for the government, Pabina Yinkere, head of institutional business at Lagos-based Vetiva Capital Management, said in an interview.

The partner companies will receive the right of first refusal in any sale of the stakes, according to Nwanze from SBM Intelligence. International oil companies built up the stakes they have today from the late 1970s to the 1990s. So there is precedent for offloading such assets.

“The JV assets are good assets,” Yinkere said. “Nigerian buyers may be few this time around due to funding as many local banks will not be so willing to lend toward this. We could see healthy foreign appetite for the sale, particularly from China and India.”

But while Nigeria thinks about loosening its grip on the assets, a rebound in crude oil prices could still cause the sale to go the way of previous divestment plans.

“The need to increase government income is the primary motivation for these new proposals, and a return to the good times of higher oil prices and normal Nigerian production will be a formidable disincentive,” Nwanze said.

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.

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Gold

Gold Steadies After Initial Gains on Reports of Israel’s Strikes in Iran

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Gold, often viewed as a haven during times of geopolitical uncertainty, exhibited a characteristic surge in response to reports of Israel’s alleged strikes in Iran, only to stabilize later as tensions simmered.

The yellow metal’s initial rally came on the heels of escalating tensions in the Middle East, with concerns mounting over a potential wider conflict.

Spot gold soared as much as 1.6% in early trading as news circulated regarding Israel’s purported strikes on targets in Iran.

This surge, reaching a high of $2,400 a ton, reflected the nervousness pervading global markets amidst the saber-rattling between the two nations.

However, as the day progressed, media reports from both countries appeared to downplay the impact and severity of the alleged strikes, contributing to a moderation in gold’s gains.

Analysts noted that while the initial spike was fueled by fears of heightened conflict, subsequent assessments suggesting a less severe outcome helped calm investor nerves, leading to a stabilization in gold prices.

Traders had been bracing for a potential Israeli response following Iran’s missile and drone attack over the weekend, raising concerns about a retaliatory spiral between the two adversaries.

Reports of an explosion in Iran’s central city of Isfahan further added to the atmosphere of uncertainty, prompting flight suspensions and exacerbating market jitters.

In addition to geopolitical tensions, gold’s rally in recent months has been underpinned by other factors, including expectations of US interest rate cuts, sustained central bank buying, and robust consumer demand, particularly in China.

Despite the initial surge followed by stabilization, gold remains sensitive to developments in the Middle East and broader geopolitical dynamics.

Investors continue to monitor the situation closely for any signs of escalation or de-escalation, recognizing gold’s role as a traditional safe haven in times of uncertainty.

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Commodities

Global Cocoa Prices Surge to Record Levels, Processing Remains Steady

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Cocoa futures in New York have reached a historic pinnacle with the most-active contract hitting an all-time high of $11,578 a metric ton in early trading on Friday.

This surge comes amidst a backdrop of challenges in the cocoa industry, including supply chain disruptions, adverse weather conditions, and rising production costs.

Despite these hurdles, the pace of processing in chocolate factories has remained constant, providing a glimmer of hope for chocolate lovers worldwide.

Data released after market close on Thursday revealed that cocoa processing, known as “grinds,” was up in North America during the first quarter, appreciating by 4% compared to the same period last year.

Meanwhile, processing in Europe only saw a modest decline of about 2%, and Asia experienced a slight decrease.

These processing figures are particularly noteworthy given the current landscape of cocoa prices. Since the beginning of 2024, cocoa futures have more than doubled, reflecting the immense pressure on the cocoa market.

Yet, despite these soaring prices, chocolate manufacturers have managed to maintain their production levels, indicating resilience in the face of adversity.

The surge in cocoa prices can be attributed to a variety of factors, including supply shortages caused by adverse weather conditions in key cocoa-producing regions such as West Africa.

Also, rising demand for chocolate products, particularly premium and artisanal varieties, has contributed to the upward pressure on prices.

While the spike in cocoa prices presents challenges for chocolate manufacturers and consumers alike, industry experts remain cautiously optimistic about the resilience of the cocoa market.

Despite the record-breaking prices, the steady pace of cocoa processing suggests that chocolate lovers can still expect to indulge in their favorite treats, albeit at a higher cost.

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Crude Oil

Dangote Refinery Leverages Cheaper US Oil Imports to Boost Production

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Crude Oil

The Dangote Petroleum Refinery is capitalizing on the availability of cheaper oil imports from the United States.

Recent reports indicate that the refinery with a capacity of 650,000 barrels per day has begun leveraging US-grade oil to power its operations in Nigeria.

According to insights from industry analysts, the refinery has commenced shipping various products, including jet fuel, gasoil, and naphtha, as it gradually ramps up its production capacity.

The utilization of US oil imports, particularly the WTI Midland grade, has provided Dangote Refinery with a cost-effective solution for its feedstock requirements.

Experts anticipate that the refinery’s gasoline-focused units, expected to come online in the summer months will further bolster its influence in the Atlantic Basin gasoline markets.

Alan Gelder, Vice President of Refining, Chemicals, and Oil Markets at Wood Mackenzie, noted that Dangote’s entry into the gasoline market is poised to reshape the West African gasoline supply dynamics.

Despite operating at approximately half its nameplate capacity, Dangote Refinery’s impact on regional fuel markets is already being felt. The refinery’s recent announcement of a reduction in diesel prices from N1,200/litre to N1,000/litre has generated excitement within Nigeria’s downstream oil sector.

This move is expected to positively affect various sectors of the economy and contribute to reducing the country’s high inflation rate.

Furthermore, the refinery’s utilization of US oil imports shows its commitment to exploring cost-effective solutions while striving to meet Nigeria’s domestic fuel demand. As the refinery continues to optimize its production processes, it is poised to play a pivotal role in Nigeria’s energy landscape and contribute to the country’s quest for self-sufficiency in refined petroleum products.

Moreover, the Nigerian government’s recent directive to compel oil producers to prioritize domestic refineries for crude supply aligns with Dangote Refinery’s objectives of reducing reliance on imported refined products.

With the flexibility to purchase crude using either the local currency or the US dollar, the refinery is well-positioned to capitalize on these policy reforms and further enhance its operational efficiency.

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