Oil Price Drops Following OPEC+ Meeting
Oil price extended its decline on Friday following OPEC+ meeting on Thursday.
Brent crude oil, against which Nigerian oil is priced, declined from $45.16 per barrel it traded to $44.31 per barrel on Friday after OPEC and allies lowered oil demand for the year by 9.1 million barrels per day (mbpd).
The cartel expects oil demand to dip by as much as 11.2 million bpd if the second wave of coronavirus is not well contained in the second half of the year.
The uncertainty surrounding the COVID-19 pandemic and the global demand for the commodity weighed on the oil market on Thursday and Friday as energy traders and investors doubt the current price level can be sustained.
While Brent crude oil has remained above $40 per barrel for almost three months, a further decline in price would hurt Nigeria’s ability to fund its 2020 budget and at the same time continue to service its huge debt.
Also, with economic activities gradually opening up, especially with the expected resumption of international flights on August 29, demand for forex is likely to surge further and drag on the nation’s weak foreign reserves.
However, experts doubt the demand for crude oil would reach pre-pandemic levels in 2021, meaning they have concluded that 2020’s demand may not get better than this.
Rystad Energy, an energy consultancy firm, said in a note that “Demand, in our view, is only likely to near pre-pandemic levels in 2021 and the rest of 2020 will be a muted struggle while facing the effects of the second wave.
“On a positive note, compared to our expectations, OPEC+ has still complied as an alliance quite well with the target cuts, and that is why prices maintain their 40+ dollar levels. The cuts that this group of countries has implemented are unprecedented and have helped the market.
“While there is so much uncertainty over Covid-19, the current global production levels are providing a cushion for prices to safe-guard some profitability for producers.
“Now that the OPEC+ meeting is behind us, we believe we will enter a short-term period of bearish news, with a moderate global oil glut shaping in the next three months. Traders will be keeping an eye on global inventories in weeks to come as crude stock levels and refinery runs will be the key indicators of where the global market is moving.”
Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd
The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.
The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.
The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.
The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.
Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.
The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.
Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins
Oil Prices Recover from 4 Percent Decline as Joe Biden Wins
Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.
This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.
Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.
On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.
“Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.
“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”
The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.
“There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.
“Either you’re crimping energy demand or consumption behavior.”
Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020
Revenue of OPEC Members to Drop to 18 Year Low in 2020
The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.
EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.
“If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.
The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.
It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.
It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.
“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”
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