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Venezuela’s chaos Can Spark Oil Price Increase

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  • Venezuela’s chaos Can Spark Oil Price Increase

Deepening turmoil in Venezuela could fuel a rise in oil prices, a feat the Organisation of the Petroleum Exporting Countries (OPEC) has been striving to achieve through oil production cuts.

According to MarketWatch report, the South American nation, home to the world’s largest oil reserves, voted to give President Nicolás Maduro’s government powers to redraft the constitution, sparking clashes between protesters and state security forces. The opposition charges the vote could mark the end of democracy in Venezuela.

What the chaos portends for the oil industry, the report said: “The “possibility of chaos” in the country is the “only true element that would change the dynamic for crude,” Tom Kloza, global head of energy analysis at Oil Price Information Service, said.

“If “Vendemonium,” as he dubbed it, comes to pass, it could lift West Texas Intermediate crude-oil prices up from their current trading range of roughly $42 to $53 a barrel, said Kloza.

WTI crude, the U.S. benchmark, traded just below $50 a barrel last week, contributing to a 8.7 per cent weekly gain fueled in part by data showing a fourth-straight weekly decline in U.S. crude inventories, as well as pledges by some OPEC members to curb exports.

But WTI crude and Brent, the global benchmark, still trade about eight per cent lower year to date, even as a production-cut agreement by OPEC members and other major non-cartel nations such as Russia, that began at the start of the year, has seen historically high compliance and has been extended through March of next year.

“For oil, there is “ongoing concern about stability as the opposition gains strength and the chance that the U.S. will ratchet up pressure by halting imports,” James Williams, energy economist at WTRG Economics told MarketWatch. Venezuela is among the top suppliers of crude to the U.S., though its production has declined since last year on the heels of civil unrest.

“Venezuela’s oil output has dropped over the last year. A long strike by Venezuelan national oil firm’s workers was to blame for the huge drop in 2003. The chaos intensified last week with the U.S. State Department ordering family members of U.S. embassy employees in Caracas to leave the country.

“If we are removing diplomats, it is certainly an indicator of the intent to embargo oil from Venezuela,” said Williams. The U.S. had placed sanctions last week on 13 high-ranking Venezuelan officials for alleged corruption, among other offences, according to The Wall Street Journal.

“If Maduro installs puppeteers who more or less make up new constitutional rules, it really puts an already beleaguered (U.S. President Donald Trump) administration in a tough spot,” said Kloza.

Still, if the Trump administration “tries to put financial handcuffs” on Venezuela’s state-owned Petróleos de Venezuela, SA, (PdVSA), “it might provide the catalyst for the oil market and for consumer gasoline prices to rise appreciably,” Kloza said.

And the impact could be far reaching, with “financial handcuffs or penalties” potentially signaling “incredible turbulence for Citgo,” he said.

Citgo Petroleum Corporation, the Venezuela-owned American refiner, employs thousands of U.S. citizens and is “instrumental in ensuring adequate supply of gasoline, diesel fuel and jet fuel,” said Kloza.

In Russia, integrated oil firm Rosneft, which is majority owned by the country’s government,” might ultimately gain a large ownership stake in Citgo should its parent company and country default,” he said.

Rosneft received 49.9 per cent of the equity in PdVSA unit Citgo late last year as collateral for a $1.5 billion loan to PdVSA. Reuters recently reported that Rosneft is in talks with PdVSA for a fuel-supply deal and stakes in Venezuela-based oil and natural-gas fields.

For now, traders can just “hope that Trump only target individuals, not oil” when it comes to sanctions, said Williams.He also warned that the market could see a reaction from the U.S. that is “more complex than a simple halt in imports.

Meanwhile, Kloza said that if Venezuelan crude continues to flow, there is “limited upside” for the oil market “despite the large inventory draws that have happened and will continue to happen for some time.”

“Without ‘Vendemonium,’ we’re destined to remain in a low-price oil environment into 2018 or later,” said Kloza.

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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Nigeria’s Power Sector to Get $7.5bn from $30bn African Electrification Initiative, Says Minister Adelabu

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Power - Investors King

Minister of Power Adebayo Adelabu has said that Nigeria is set to receive a portion of a $30 billion investment aimed at electrifying Africa.

During a visit to Splendor Electric Nigeria Limited, Adelabu revealed that the World Bank and the African Development Bank (AfDB) have committed to this ambitious initiative with Nigeria slated to receive approximately $7.5 billion, or 25% of the total fund.

The groundbreaking initiative is designed to extend electrification to an additional 300 million Africans over the next five years.

This large-scale project aims to address the energy deficit that has long plagued the continent and is expected to transform the power infrastructure significantly.

Adelabu expressed optimism about Nigeria’s role in the project, citing the country’s large population and ongoing power sector reforms as key factors in securing a substantial share of the funds.

“I want to inform you of the proposal or the intention, which is at an advanced stage, by the World Bank and the African Development Bank to spend about $30 billion to extend electrification to an additional 300 million Africans within the next five years. Nigeria is going to participate fully in this. I am confident that nothing less than 20% or 25% of this fund would come into Nigeria because of our population,” Adelabu stated.

The minister’s visit to Splendor Electric Nigeria Limited, a porcelain insulator company, underscores the government’s commitment to involving local businesses in the electrification drive.

The investment will focus on enhancing and upgrading power infrastructure, which is crucial for improving electricity access and reliability across Nigeria.

Despite the promising news, Nigeria continues to face significant challenges in its power sector. The country’s power grid has suffered frequent collapses, with the Nigerian Bureau of Statistics reporting less than 13 million electricity customers and frequent nationwide blackouts.

The International Energy Agency highlighted that Nigeria’s national grid experienced 46 collapses from 2017 to 2023, exacerbating the nation’s energy crisis.

To combat these issues, the government is also advancing the Presidential Power Initiative, a project in collaboration with Siemens, which aims to build thousands of new lines and numerous transmission and injection substations.

Adelabu noted that the pilot phase of this initiative is nearing completion and that Phase 1 will commence soon.

With over 200 million people and a chronic energy shortfall, Nigeria’s power sector is in urgent need of overhaul.

The additional $7.5 billion from the African Electrification Initiative represents a critical step toward achieving reliable and widespread electricity access.

The investment is expected to stimulate not only infrastructure development but also economic growth, creating opportunities for local companies and improving the quality of life for millions of Nigerians.

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Oil Prices Climb as Markets Eye Potential US Rate Cuts in September

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Oil prices rose during the Asian trading session today on speculation that the U.S. Federal Reserve may begin cutting interest rates as soon as September.

Brent crude oil, against which Nigerian oil is priced, increased by 32 cents to $82.95 a barrel, while U.S. West Texas Intermediate crude oil climbed 34 cents to $80.47.

The anticipation of rate cuts stems from recent U.S. inflation and labor market data indicating a trend towards disinflation and balanced employment, according to ANZ Research.

The Federal Reserve is set to review its policy on July 30-31, with expectations of holding rates steady but providing clues for potential cuts in September.

The potential rate cuts could stimulate economic activity, increasing demand for oil. This optimism has been partially offset by recent concerns over China’s slower-than-expected economic growth, which could dampen global oil demand.

President Joe Biden’s announcement to not seek re-election and endorse Vice President Kamala Harris had minimal impact on oil markets.

Analysts suggest that U.S. presidential influence on oil production is limited, although a potential Trump presidency could boost oil demand due to his stance against electric vehicles.

In response to economic challenges, China surprised markets by lowering key policy and lending rates. While these measures aim to bolster the economy, analysts remain cautious about their immediate impact on oil demand.

With OPEC+ production cuts continuing to support prices, the focus remains on the U.S. Federal Reserve’s next moves.

Any decision to cut rates could further influence oil prices in the coming months, highlighting the interconnectedness of global economic policies and energy markets.

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Dangote Refinery Clash Threatens Nigeria’s Oil Sector Stability

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Nigeria’s oil and gas sector is facing a new challenge as a dispute between Dangote Industries Limited and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA) intensifies.

The disagreement centers on claims by NMDPRA that diesel from the Dangote Refinery contains high sulfur levels, making it inferior to imported products.

The $20 billion Dangote Refinery, located near Lagos, has the potential to process half of Nigeria’s daily oil output, promising to reduce dependency on foreign fuel imports and create thousands of jobs.

However, the recent accusations have cast a shadow over what should be a significant achievement for Africa’s largest economy.

Industry experts warn that the ongoing conflict could deter future investments in Nigeria’s oil sector.

“Regulatory uncertainty is a major disincentive for investors,” said Luqman Agboola, head of energy at Sofidia Capital. “Any factor affecting foreign investment impacts the entire value chain, risking potential energy deals.”

The regulatory body, led by Farouk Ahmed, maintains that Nigeria cannot rely solely on the Dangote facility to meet its petroleum needs, emphasizing the need for diverse sources.

This position has stirred controversy, with critics accusing the agency of attempting to undermine a vital national asset.

Amidst these tensions, energy analyst Charles Ogbeide described the agency’s comments as reckless, noting that the refinery is still in its commissioning stages and is working to optimize its sulfur output.

In response, Dangote Industries has called for fair assessments of its products, asserting that their diesel meets African standards.

The refinery’s leadership argues that certain factions may have ulterior motives, aiming to stifle progress through misinformation.

As the dispute continues, the broader implications for Nigeria’s oil sector remain uncertain. The outcome will likely influence not only domestic production but also the country’s standing in the global energy market.

Observers hope for a resolution that supports both industrial growth and regulatory integrity, ensuring stability in a sector crucial to Nigeria’s economy.

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