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W’Bank: NNPC’s 3-month Deduction for Subsidies Surpass 2017 Disbursement



  • W’Bank: NNPC’s 3-month Deduction for Subsidies Surpass 2017 Disbursement

The Nigerian National Petroleum Corporation’s (NNPC) deductions from crude oil sales revenue for petrol subsidies in the first three months of 2018 alone exceeded the deductions for the whole of 2017, a report by the World Bank has revealed.

Specifically, the Bank in report titled: “Nigeria Bi-annual Economic Update for Fall 2018,” disclosed that while the deductions for the 2017 full year totalled N107.3 billion, that for January to March 2018 alone, was a total of N139.3 billion. The report pointed out that landing and transportation costs for imported petrol continue to be higher than the capped domestic pump price, “giving rise to cost under-recoveries by the NNPC.”

Independent oil marketers have stopped importing petrol since 2016 for this reason.
“The volume of petrol imported by NNPC in 2018 has been higher than in any other year. During the first three months of 2018, NNPC imported more than half of what it had imported in the whole of 2016.

“The need to shore up fuel inventories may have contributed to this, but there have also been widely reported cases of fuel smuggling to neighbouring countries where pump prices are higher than the subsidised price in Nigeria,” it stated.

The report had three broad aims: key developments in the Nigerian Economy in the recent past; assessment of likely economic outcomes in the short-to-medium term given the policy developments and highlights of key short-term risks. In addition, it contained an in-depth examination of selected highly relevant economic policy topics.

It explained that federally-collected revenues were higher in the first half of 2018 than in the corresponding period of 2017, with both the oil and non-oil revenue components surpassing their levels in first half of 2017 in nominal terms.

The increase in net oil and gas revenue collections, it noted were particularly significant at 140 per cent, mainly on account of higher oil prices in 2018, relative to 2017 which had an average price of $71.3 per barrel.

“The oil and non-oil revenues were however lower than the government’s targets. While the oil price was higher than the budgeted price (US$71.3 compared to the conservative oil benchmark price of US$51 per barrel), oil output came in lower than the target (an estimated actual production of 2.0mb/d, compared to 2.3mb/d budgeted). Furthermore, deductions from gross oil revenues were higher than planned.

“The various prior deductions by the NNPC from oil sales (including ‘cost under-recovery’ for unbudgeted petrol subsidies) contributed to net oil revenues in first half being 34 per cent below budget,” said the report.

It further stated: “Available data indicate that NNPC deductions from crude oil sales revenue for petrol subsidies in the first three months of 2018 exceeded the deductions for the whole of 2017.

On how far the country has fared with its plan to exit the practice of engaging joint venture cash call in its oil production business, the report noted that: “The government indicated, since 2017, that it will introduce a new funding mechanism for the joint venture cash call payments (JVCC), allowing for cost recovery by the international oil companies (IOCs). “However, cash call transfers still continue to be made by NNPC from gross oil sales revenue, despite the JVCC not being budgeted for.

“The government also indicated through its 2018 budget plans to restructure its ownership (equity) in joint venture oil assets to reduce the joint venture costs to the Nigerian government. It is not clear how much progress has been made on this front,” added the report.

Continuing, the report stated: “Net accrual to the Excess Crude Account (ECA) in first half of 2018 was negative. This was despite the fact that actual oil prices were higher than the budget oil price benchmark (i.e. the assumed oil price used to prepare the federation revenue framework) of US$51 per barrel.

“The ECA was established on the basis of Section 35 of the federal Fiscal Responsibility Law which stipulates a commodity (oil) price-based fiscal rule requiring that savings should accrue to the ECA if the price exceeds the budget benchmark.

“However in recent past, accruals have not been realised because in practice, compensations are made for oil output shortfalls. Furthermore, the NNPC deductions are charged first to oil revenues before considerations for the ECA.

“In the first half of 2018, there was also a US$496 million withdrawal from the ECA for the purchase of fighter aircrafts for anti-terrorism operations.

“Thus, apart from a US$80.6 million that accrued to the account in May, there were no other accruals (besides investment income) and the account which opened at US$2.2 billion in January 2018, had a balance of US$1.9 billion at the end of June.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, 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




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.


  • 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



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




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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