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Nigeria, Others Need Commodity-price Surge to Avert Debt Crunch –IMF

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  • Nigeria, Others Need Commodity-price Surge to Avert Debt Crunch –IMF

The sub-Saharan Africa faces a potential debt crunch unless commodity prices improve and boost the pace of economic growth, the International Monetary Fund has said.

The Washington-based Fund said the region’s median government debt level would probably exceed 50 per cent of the Gross Domestic Product this year from 34 per cent in 2013, while the cost of servicing the liabilities would average almost 10 per cent compared with half of that four years ago, Bloomberg reported.

There have been no investment-grade dollar-debt issuers in sub-Saharan Africa after Moody’s Investors Service and Fitch Ratings Limited cut Namibia to junk this year.

Commodity returns have dropped in six of the past seven years and expectations for slower growth in China, the biggest consumer, don’t bode well for African nations that depend on mining, crops and oil for the bulk of their income.

The IMF had said in October that the region’s growth might average 2.6 per cent this year, almost double 2016’s level but barely above population expansion, with delays in making policy changes risking this.

“Rising debt levels present a major risk to progress in sub-Saharan Africa, especially if there is another major shock in the global commodity market and if African markets are still in a recovery stage in the economic cycle,” a London-based economic-research head at Ecobank Transnational Incorporated, Gaimin Nonyane, said.

The Federal Government of Nigeria’s debt-sale plans would more than double its outstanding dollar bonds to about $9bn.

That would add to issuances by South Africa, Ghana, Senegal, Ivory Coast and Gabon.

The Fund said policy uncertainty in South Africa and Nigeria, the region’s biggest economies, were restraining growth, with the IMF reducing their 2017 expansion forecasts to below one per cent for the two nations.

In Kenya, the central bank said the nation couldn’t continue its current debt build-up path if it would remain sustainable.

Authorities are also negotiating with the IMF to rollover a standby facility of $1.5bn.

The number of sub-Saharan African countries in or at risk of debt distress almost doubled to 12 over the past four years, while Mozambique – which defaulted this year – is among those engaging creditors to restructure debt.

Gabon, Ghana and Zambia are most susceptible to the risk of financing stress given large Eurobond maturities in the next decade, according to Moody’s, which said sub-Saharan Africa sovereign downgrades outnumbered upgrades 20 to two since 2015.

“We don’t envisage a debt crisis, but it’s clearly a risk for a handful of countries,” a London-based economist at Capital Economics, William Jackson, said by phone.

With no long track record of repaying international bonds, it will be a test for nations like Ghana, scheduled to make a principal payment of $2.75bn through 2026, Moody’s said in a report last month.

Gabon owes $2.2bn by 2025, and Zambia $3bn from 2022 to 2027.

“Because the payments are too large, these economies will be very sensitive to any change in external financing conditions,” Jackson said.

“If commodity prices fall, or capital inflows to emerging markets are low, then these countries will struggle to roll over these debts. They may then need to pay higher interest rates or suffer from weaker currencies.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China

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Crude Oil

Oil prices showed signs of recovery on Thursday after a recent slump to a six-month low, with Brent crude oil appreciating by 1% to $75.06 a barrel while the U.S. West Texas Intermediate crude oil also rose by 1% to $70.05 a barrel.

However, investor concerns persist over sluggish demand in both the United States and China.

The market’s unease was triggered by data indicating that U.S. oil output remains close to record highs despite falling inventories.

U.S. gasoline stocks rose unexpectedly by 5.4 million barrels to 223.6 million barrels, adding to the apprehension.

China, the world’s largest oil importer, also contributed to market jitters as crude oil imports in November dropped by 9% from the previous year.

High inventory levels, weak economic indicators, and reduced orders from independent refiners were cited as factors weakening demand.

Moody’s recent warnings on credit downgrades for Hong Kong, Macau, Chinese state-owned firms, and banks further fueled concerns about China’s economic stability.

Oil prices have experienced a 10% decline since OPEC+ announced voluntary output cuts of 2.2 million barrels per day for the first quarter of the next year.

In response to falling prices, OPEC+ member Algeria stated that it would consider extending or deepening oil supply cuts.

Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman met to discuss further oil price cooperation, potentially boosting market confidence in the effectiveness of output cuts.

Russia, part of OPEC+, pledged increased transparency regarding fuel refining and exports, addressing concerns about undisclosed fuel shipments.

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Crude Oil

Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts

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OPEC - Investors King

Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.

Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.

Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.

Despite this effort to tighten supply, market sentiment remains unresponsive.

“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.

Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.

Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.

Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.

Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.

The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.

Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.

Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.

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Crude Oil

U.S. Crude Production Hits Another Record, Posing Challenges for OPEC

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Oil

U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.

The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.

The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.

Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.

This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.

While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.

The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.

Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.

Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.

This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.

In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.

However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.

Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.

While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.

The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.

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