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FG Awaits N’Assembly Approval to Settle N2tn Liabilities to Oil Marketers, Contractors

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  • FG Awaits N’Assembly Approval to Settle N2tn Liabilities to Oil Marketers, Contractors

The Federal Government has said it is awaiting approval of the National Assembly to settle its liabilities to fuel marketers for subsidy claims.

Minister of Finance, Mrs. Kemi Adeosun, said the Federal Executive Council had approved the Promissory Notes proposed to settle the subsidy arrears and other liabilities inherited from the previous administration, but required National Assembly’s approval of the decision, when it resumes from recess, before the claims could be settled.

The National Assembly is billed to resume on September 19.

The minister had disclosed mid July that FEC had approved the validation of promissory notes and a debt issuance programme for payment to Federal Government contractors, its employees and state governments valued at N2.7 trillion, a breakdown of which include a discounted N1.93 trillion owed contractors and suppliers as well as N740 billion outstanding pensions and promotional salary arrears reconciled by a committee set up by the Ministry of Finance.

But oil marketers had recently raised the alarm about impending crisis in the downstream oil sector following the unpaid arrears and threatened to downsize their workforce.

“Basically all this was inherited from previous administration. We have proposed Promissory Notes to pay, as part of clearing inherited liabilities of over N2trillion. This was approved by FEC and now awaits the National Assembly approval when they resume,” the minister stated.

Adeosun pointed out that, when the payments are approved, some marketers that owed taxes and were indebted to the Asset Management Corporation of Nigeria (AMCON) would fulfill such obligations before collecting their dues as part of the agreement they had with the government.

Lamenting that the subsidy deal sealed by the erstwhile administration was “not fair to government,” Adeosun pointed out that, they agreed with the banks to “charge interest at 26 per cent plus exchange rate differentials so it is a moving target …every day the bill gets bigger.”

“It was not drafted in the national interest. It was one sided in favour of the marketers. If I owe you dollars, why charge naira interest? If you borrowed dollars, charge dollar interest which is from 10 -12 per cent and not naira interest at 26 per cent,” she added.

About 15 months after Nigeria successfully exited the fuel subsidy regime, characterised by corruption and persistent fuel crisis, non-payment of the subsidy monies, which the marketers incurred between 2014 and 2016, has posed a fresh threat to the stability in the supply of petroleum products in the country.

The federal government on May 11, 2016 effectively ended the inefficient, ineffective and corruption-ridden fuel subsidy regime, when it adjusted the price of petrol upward, from N86.50 per litre to N145 per litre, to reflect the market dynamics, especially the volatility in exchange rate. In the circular with reference number A.4/9/017/C.2/IV/690, dated May 11, 2016, and signed by the then acting Executive Secretary of the Petroleum Products Pricing Regulatory Agency, Mrs. S.E. Iyoyo, the federal government directed the marketers of petroleum products to sell petrol within the retail price band of N135 to N145 per litre.

The marketers have repeatedly warned that unless the claims were paid, the consequences could kill not only their businesses but also worsen the liquidity crisis in the banking sector with the attendant unsavoury implications for fuel supply nationwide.

The oil marketing firms have also resolved to embark on mass retrenchment of their personnel, following the federal government’s failure to meet its outstanding subsidy obligations to the firms.

Rising from a joint meeting held in Lagos recently, the Major Oil Marketers Association of Nigeria (MOMAN), Independent Petroleum Marketers Association of Nigeria (IPMAN), Depot and Petroleum Products Marketers Association (DAPPMA), and Independent Petroleum Products Importers (IPPIs) stated that some of their members were already owing their workers over eight months’ salaries as a result of the $2 billion debt owed them by the federal government.

In a joint communiqué issued at the end of the meeting, the marketers said they had resolved to downsize their workforce unless the government urgently paid the accumulated debt to save their businesses from collapse. The communiqué signed by their legal adviser, Mr. Patrick Etim, stated that the marketers were indebted to Nigerian banks to the tune of over $2 billion, which was incurred on the importation of petroleum products.

The communiqué had noted that the federal government’s violation of the agreement reached with marketers on the payment schedule had also put the operations of many commercial banks that provided the funds in jeopardy.

The statement said, “The hope that the outstanding debt owed marketers will be paid resulting from the intervention of the vice-president, Professor Yemi Osinbajo, appears to be dashed, as the payment that was promised to take effect in July 2017 is yet to materialise.

“This is devastating to marketers, as we are being dragged daily by banks for debts owed and are under threat of putting our tank farms under receivership.

“It was expected that the various meetings held between very senior government officials and the leadership of the oil dealers to resolve the issue of the outstanding debt owed oil marketers will yield the desired result, as the figures were fully reconciled and there was a commitment from government to pay by the end of July 2017.”

Reacting to the position of the oil marketers, weekend, Nigerian National Petroleum Corporation’s spokesman, Mr. Ndu Ughammadu, stated that the corporation was also a participant in the oil marketing business and would continue to engage the marketers to avert crisis. Ughammadu noted that both the corporation and the private marketers had a social responsibility to Nigerians.

“We will continue to appeal to them not to embark on any action that will cause dislocation in products supply. We will also continue to maintain our importation levels to ensure that there is no supply disruption. Our refineries will also continue to be functional,” he said.

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.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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