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Oil Holds Momentum That’s Driven by OPEC’s Promise to Re-Balance

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Petrol - Investors King
  • Oil Holds Momentum That’s Driven by OPEC’s Promise to Re-Balance

Oil headed toward its highest close in two weeks on investor optimism after OPEC’s secretary general said the market’s journey toward equilibrium is gaining traction.

Futures in New York climbed as much as 1.7 percent, extending last week’s 4.2 percent advance. The “market re-balancing has gained massive momentum” as OPEC and its partners maintain output cuts, Secretary-General Mohammad Barkindo said Monday. Meanwhile, dwindling volumes at the biggest U.S. storage hub and the potential for bigger cargoes to sail overseas has lifted American crude to a premium over Middle East oil.

After crude had the best start to the year in more than a decade, it’s struggling to recover to its recent high in January following the biggest weekly rout in two years earlier this month. Surging American oil production continues to challenge OPEC’s efforts to alleviate a global oversupply, with forecasts pointing to record output from Permian shale basin that would put the region on par with some of OPEC’s biggest producers.

“Traders are extending last week’s rally on the view that Russia and OPEC will maintain production ceilings this year even if inventories decline and the price rises further,” said Ric Spooner, an analyst at CMC Markets in Sydney. “However, the chances are that this rally will be capped below the January highs at this stage. Rising shale oil production will prove a headwind for the oil price for a while yet.”

Rising Prices

West Texas Intermediate for March delivery, which expires Tuesday, rose as much as $1.06 to $62.74 a barrel on the New York Mercantile Exchange and traded at $62.31 at 4:02 p.m. in Seoul. Monday’s transactions will be booked Tuesday for settlement because of the U.S. Presidents’ Day holiday. The more active April contract added 1.2 percent to $62.27.

Brent for April settlement was at $65.57 a barrel on the London-based ICE Futures Europe exchange, down 10 cents. Prices added 83 cents to close at $65.67 on Monday. The global benchmark crude traded at a $3.29 premium to April WTI.

WTI was at a premium of 36 cents a barrel to the Dubai oil on Monday, compared with an average discount of about $2 over 2017. The American crude is strengthening versus the Middle East marker as a combination of new pipeline options, a rail car crunch, demand from Gulf Coast refineries and a thirst for U.S. supply from overseas means less is being hoarded.

WTI has gained more than 8 percent since the end of November, when the Organization of Petroleum Exporting Countries and its allies agreed to extend an output-curb deal until the end of this year. The group is seeking to “institutionalize” their cooperation beyond the end of a supply cut deal later this year, according to the United Arab Emirates, while Barkindo said compliance to the deal stood at 133 percent in January.

“The fundamental landscape is strong,” said Mark Keenan, global commodities strategist and head of Asia-Pacific research at Societe Generale SA in Singapore. “One of the factors is that the supply deal with OPEC and Russia is extremely compliant.”

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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Energy

Egypt Increases Fuel Prices by 15% Amid IMF Deal

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Egypt has raised fuel prices by up to 15% as the country looks to cut state subsidies as part of a new agreement with the International Monetary Fund (IMF).

The oil ministry announced increases across a variety of fuel products, including gasoline, diesel, and kerosene.

However, fuel oil used for electricity and food-related industries will remain unaffected to protect essential services.

This decision comes after a pricing committee’s quarterly review, reflecting Egypt’s commitment to align with its financial obligations under the IMF pact.

Egypt is in the midst of recalibrating its economy following a massive $57 billion bailout, orchestrated with the IMF and the United Arab Emirates.

The IMF, which has expanded its support to $8 billion, emphasizes the need for Egypt to replace untargeted fuel subsidies with more focused social spending.

This is seen as a crucial component of a sustainable fiscal strategy aimed at stabilizing the nation’s finances.

Effective immediately, the cost of diesel will increase to 11.5 Egyptian pounds per liter from 10.

Gasoline prices have also risen, with 95, 92, and 80-octane types now costing 15, 13.75, and 12.25 pounds per liter, respectively.

Despite the hikes, Egypt’s fuel prices remain among the lowest globally, trailing only behind nations like Iran and Libya.

The latest increase follows recent adjustments to the price of subsidized bread, another key staple for Egyptians, underscoring the government’s resolve to navigate its economic crisis through tough reforms.

While the rise in fuel costs is expected to impact millions, analysts suggest the inflationary effects might be moderate.

EFG Hermes noted that the gradual removal of subsidies and a potential hike in power tariffs could have a relatively limited impact on overall consumer prices.

They predict that the deceleration in inflation will persist throughout the year.

Egypt’s efforts to manage inflation have shown progress, with headline inflation slowing for the fourth consecutive month in June.

This trend offers a glimmer of hope for the government as it strives to balance economic stability with social welfare.

The IMF and Egyptian officials are scheduled to meet on July 29 for a third review of the loan program. Approval from the IMF board could unlock an additional $820 million tranche, further supporting Egypt’s economic restructuring.

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Crude Oil

Oil Prices Rise on U.S. Inventory Draws Despite Global Demand Worries

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Oil

Oil prices gained on Wednesday following the reduction in U.S. crude and fuel inventories.

However, the market remains cautious due to ongoing concerns about weak global demand.

Brent crude oil, against which Nigerian crude oil is priced, increased by 66 cents, or 0.81% to $81.67 a barrel. Similarly, U.S. West Texas Intermediate crude climbed 78 cents, or 1.01%, to $77.74 per barrel.

The U.S. Energy Information Administration (EIA) reported a substantial decline in crude inventories by 3.7 million barrels last week, surpassing analysts’ expectations of a 1.6-million-barrel draw.

Gasoline stocks also fell by 5.6 million barrels, while distillate stockpiles decreased by 2.8 million barrels, contradicting predictions of a 250,000-barrel increase.

Phil Flynn, an analyst at Price Futures Group, described the EIA report as “very bullish,” indicating a potential for future crude draws as demand appears to outpace supply.

Despite these positive inventory trends, the market is still wary of global demand weaknesses. Concerns stem from a lackluster summer driving season in the U.S., which is expected to result in lower second-quarter earnings for refiners.

Also, economic challenges in China, the world’s largest crude importer, and declining oil deliveries to India, the third-largest importer, contribute to the apprehension about global demand.

Wildfires in Canada have further complicated the supply landscape, forcing some producers to cut back on production.

Imperial Oil, for instance, has reduced non-essential staff at its Kearl oil sands site as a precautionary measure.

While prices snapped a three-session losing streak due to the inventory draws and supply risks, the market remains under pressure.

Factors such as ceasefire talks between Israel and Hamas, and China’s economic slowdown, continue to weigh heavily on traders’ minds.

In recent sessions, WTI had fallen 7%, with Brent down nearly 5%, reflecting the volatility and uncertainty gripping the market.

As the industry navigates these complex dynamics, analysts and investors alike are closely monitoring developments that could further impact oil prices.

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Commodities

Economic Strain Halts Nigeria’s Cocoa Industry: From 15 Factories to 5

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Once a bustling sector, Nigeria’s cocoa processing industry has hit a distressing low with operational factories dwindling from 15 to just five.

The cocoa industry, once a vibrant part of Nigeria’s economy, is now struggling to maintain even a fraction of its previous capacity.

The five remaining factories, operating at a combined utilization of merely 20,000 metric tons annually, now run at only 8% of their installed capacity.

This stark reduction from a robust 250,000 metric tons reflects the sector’s profound troubles.

Felix Oladunjoye, chairman of the Cocoa Processors Association of Nigeria (COPAN), voiced his concerns in a recent briefing, calling for an emergency declaration in the sector.

“The challenges are monumental. We need at least five times the working capital we had last year just to secure essential inputs,” Oladunjoye said.

Rising costs, especially in energy, alongside a cumbersome regulatory environment, have compounded the sector’s woes.

Farmers, who previously sold their cocoa beans to processors, now prefer to sell to merchants who offer higher prices.

This shift has further strained the remaining processors, who struggle to compete and maintain operations under the harsh economic conditions.

Also, multiple layers of taxation and high energy costs have rendered processing increasingly unviable.

Adding to the industry’s plight are new export regulations proposed by the National Agency for Food and Drug Administration and Control (NAFDAC).

Oladunjoye criticized these regulations as duplicative and detrimental, predicting they would lead to higher costs and penalties for exporters.

“These regulations will only worsen our situation, leading to more shutdowns and job losses,” he warned.

The cocoa processing sector is not only suffering from internal economic challenges but also from a tough external environment.

Nigerian processors are finding it difficult to compete with their counterparts in Ghana and Ivory Coast, who benefit from lower production costs and more favorable export conditions.

Despite Nigeria’s potential as a top cocoa producer, with a global ranking of the fourth-largest supplier in the 2021/2022 season, the industry is struggling to capitalize on its opportunities.

The decline in processing capacity and the industry’s current state of distress highlight the urgent need for policy interventions and financial support.

The government’s export drive initiatives, aimed at boosting the sector, seem to be falling short. With the industry facing over N500 billion in tied-up investments and debts, the call for a focused rescue plan has never been more urgent.

The cocoa sector remains a significant part of Nigeria’s economy, but without substantial support and reforms, it risks falling further into disrepair.

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