- OPEC Boosts Demand Outlook for Its Oil as Fuel Use Strengthens
OPEC boosted estimates of demand for its crude this year and next amid stronger-than-expected fuel consumption and a weaker outlook for rival supply.
The Organization of Petroleum Exporting Countries raised forecasts for the amount it needs to supply in 2017 and 2018 by about 200,000 barrels a day for each year, according to a report from its secretariat in Vienna. Still, a rebound in Libyan production pushed the group’s output last month to the highest this year, undermining its plan to rebalance oversupplied world markets.
Oil prices have lost about 6 percent in London this year as production cuts by OPEC and Russia fail to clear a global glut. Yet Brent futures have stabilized above $50 a barrel this month as U.S. crude inventories diminish, signaling OPEC’s actions are finally having some impact.
The organization increased projections for global oil demand in 2017 and 2018 by about 100,000 barrels a day for each year. Consumption proved stronger than expected in developed nations during the second quarter, it said.
OPEC also lowered estimates for rival supply, by 50,000 barrels a day in 2017 and 90,000 a day in 2018, following weak output in the U.S. and Canada last quarter.
The report indicated that OPEC’s strategy to rebalance the market is having some success, with oil stockpiles in developed nations falling by 21.9 million barrels in June.
Still, at just over 3 billion barrels, this leaves them about 252 million above their five-year average. OPEC has said its main objective is to reduce inventories to average levels.
The plan has been complicated by a rebound in supply from Libya and Nigeria, which were exempt from last year’s agreement to cut production while they tackled domestic unrest and supply outages.
Libyan output climbed by 154,300 barrels a day to about 1 million a day in July, according to external data sources compiled by OPEC. Production from all 14 members reached 32.87 million a day.
Iraq, which has lagged behind other nations in delivering its promised cuts, showed some improvement in its adherence. The country’s output fell by 33,100 barrels a day to 4.468 million a day, still above its target.
Iraqi Oil Minister Jabbar al-Luaibi flew Wednesday to meet his Saudi counterpart Khalid Al-Falih, who has promised to increase pressure on non-compliant nations.
While OPEC uses external data — known as secondary sources — to monitor compliance with supply curbs, the report also includes production data submitted directly by member nations.
In an unusual omission, there was no direct data from Saudi Arabia for the latest month in this report. Secondary sources showed the kingdom’s output at 10.067 million barrels a day in July, slightly above its target.
Despite the production increases, the report indicated that OPEC can make more significant progress in depleting inventories during the second half of the year.
If the group’s output remains steady at 32.87 million barrels a day, it would shrink global stockpiles by about 68 million barrels.
Egbin Decries N388B NBET Debt, Idle Capacity
Egbin Power Plc, the biggest power station in Nigeria, has said it is owed N388bn by the Nigerian Bulk Electricity Trading Plc for electricity generated and fed into the national grid.
The company disclosed this on Tuesday during an oversight visit by the Senate Committee on Privatisation, led by its Chairman, Senator Theodore Orji, to the power station, located in Ikorodu, Lagos.
The government-owned NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells it to the distribution companies, which then supply it to the consumers.
The Group Managing Director, Sahara Power Group, Mr. Kola Adesina, told the lawmakers that the total amount owed to Egbin by NBET included money for actual energy wheeled out, interest for late payments and available capacity payments.
Egbin is one of the operating entities of Sahara Power Group, which is an affiliate of Sahara Group. The plant has an installed capacity of 1,320MW consisting of six turbines of 220 megawatts each.
The company said from 2020 till date, the plant had been unable to utilize 175MW of its available capacity due to gas and transmission constraints.
Adesina said, “At the time when we took over this asset, we were generating averagely 400MW of electricity; today, we are averaging about 800MW. At a point in time, we went as high as 1,100MW. Invariably, this is an asset of strategic importance to Nigeria.
“The plant needs to be nurtured and maintained. If you don’t give this plant gas, there won’t be electricity. Gas is not within our control.
“Our availability is limited to the regularity of gas that we receive. The more irregular the gas supply, the less likely there will be electricity.”
He noted that if the power generated at the station was not evacuated by the Transmission Company of Nigeria, it would be useless.
Adesina said, “Unfortunately, as of today, technology has not allowed the power of this size to be stored; so, we can’t keep it anywhere.
“So, invariably, we will have to switch off the plant, and when we switch off the plant, we have to pay our workers irrespective of whether there is gas or transmission.
“Sadly, the plant is aging. So, this plant requires more nurturing and maintenance for it to remain readily available for Nigerians.
“Now, where you have exchange rate move from N157/$1 during acquisition in 2013 to N502-N505/$1 in 2021, and the revenue profile is not in any way commensurate to that significant change, then we have a very serious problem.”
He said at the meeting of the Association of Power Generation Companies on Monday, members raised concern about the debts owed to them.
He added, “All the owners were there, and the concern that was expressed was that this money that is being owed, when are we going to get paid?
“The longer it takes us to be paid, the more detrimental to the health and wellbeing our machines and more importantly, to our staff.”
Adesina lamented that the country’s power generation had been hovering around 4,000MW in recent years.
Oil Rises on U.S. Fuel Drawdowns Despite Surging Coronavirus Cases
Oil prices climbed on Wednesday after industry data showed U.S. crude and product inventories fell more sharply than expected last week, reinforcing expectations that demand will outstrip supply growth even amid a surge in Covid-19 cases.
U.S. West Texas Intermediate (WTI) crude futures rose 48 cents, or 0.7%, to $72.13 a barrel, reversing Tuesday’s 0.4% decline.
Brent crude futures rose 34 cents, or 0.5%, to $74.82 a barrel, after shedding 2 cents on Tuesday in the first decline in six days.
Data from the American Petroleum Institute industry group showed U.S. crude stocks fell by 4.7 million barrels for the week ended July 23, gasoline inventories dropped by 6.2 million barrels and distillate stocks were down 1.9 million barrels, according to two market sources, who spoke on condition of anonymity.
That compared with analysts’ expectations for a 2.9 million fall in crude stocks, following a surprise rise in crude inventories the previous week in what was the first increase since May.
Traders are awaiting data from the U.S. Energy Information Administration (EIA) on Wednesday to confirm the drop in stocks.
“Most energy traders were unfazed by last week’s build, so expectations should be high for the EIA crude oil inventory data to confirm inventories resumed their declining trend,” OANDA analyst Edward Moya said in a research note.
On gasoline stocks, analysts had expected a 900,000 barrel decline drop in the week to July 23.
“The U.S. is still in peak driving season and everyone is trying to make the most of this summer,” Moya said.
Fuel demand expectations are undented by soaring cases of the highly infectious delta variant of the coronavirus in the United States, where the seven-day average for new cases has risen to 57,126. That is about a quarter of the pandemic peak.
Oil Price Rises To $74.70 Despite Delta Variant
Oil price inched higher on Tuesday despite the fast spreading COVID-19 Delta variant. Brent crude oil, against which Nigerian oil is priced gained, $0.20 or 0.27 percent to $74.70 per barrel on Tuesday at 12:05 am Nigerian time.
Delta variant is spreading in China, the world’s largest importer of crude oil, forcing crude oil investors to start cutting down on their oil demand projections.
“The Delta variant is still spreading and China has started to clamp down on teapots, so their import growth would not be that much,” said Avtar Sandu, a senior commodities manager at Singapore’s Phillips Futures, referring to independent refiners.
Strong U.S. demand and expectations of tight supplies have helped crude oil to recover from a 7 percent slump recorded last Monday to mark their first gains in two to three weeks last week.
Global oil markets are expected to remain in deficit despite a decision by the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, to raise production through the rest of the year.
“There is seemingly a battle within the energy complex between the prevailing supply deficit engineered by OPEC+ and the threat of the COVID-19 Delta variant in regions with low vaccination rates,” said StoneX analyst Kevin Solomon.
“The slow take-up of vaccinations will continue to limit some upside in oil demand in those regions, and there will be intermittent spells in the recovery in the coming months.”
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