Oil prices rose on Friday on hopes of a fuel demand recovery in the United States and Europe as economic growth picks up and lockdowns ease, but worries about India’s raging second wave of COVID-19 cases kept a lid on gains.
Brent crude futures rose 17 cents, or 0.3%, to $65.57 a barrel, after climbing 8 cents on Thursday.
U.S. West Texas Intermediate (WTI) crude futures jumped 31 cents, or 0.5%, to $61.73 a barrel, also after an 8 cent gain on Thursday.
“The market shrugged off last week’s (U.S. oil) inventory build, instead comforted by the continued improvement in gasoline demand,” ANZ analysts said in a note.
U.S. refiner Valero said gasoline and diesel demand were back to 93% and 100% of the levels they were at before the pandemic, with chief commercial officer Gary Simmons saying the company is “pretty bullish on gasoline going forward”.
Improving conditions in Europe also buoyed sentiment. France said schools would reopen on Monday and domestic travel curbs in place since early April restricting people to within 10 km (6 miles) of their homes would end on May 3.
“With the COVID headline shockers from India and Japan fading to the back burner and so far no related risk of mutations spilling back into the U.S. and Europe, (the) buy-in dip has remained the order of the day,” said Axi’s chief market strategist Stephen Innes.
Nevertheless, both benchmark crude contracts are headed for a weekly loss of nearly 2% on concerns about sliding fuel demand in India, the world’s third largest oil importer, where daily infections and deaths from COVID-19 hit new records this week.
Several countries, including Australia, Britain, Canada, and the United Arab Emirates, have barred or cut flights from India.
NNPC Closes Direct Sale and Direct Purchase Deals With 26 Firms
The Nigerian National Petroleum Corporation (NNPC) has picked 26 foreign and local companies as well as 12 countries to lift the country’s crude oil for the next two years.
The crude term contracts, expected to run from 2021 through 2023, would see the firms and the selected nations, which would operate on a Government-to-Government (G2G) basis to purchase the commodity from the national oil company.
The deal is coming less than a week after the corporation chose 16 oil and gas consortia for its new crude-for-fuel swap contracts for one year starting in August.
The contracts, known as Direct Sale, Direct Purchase (DSDP) are high-stakes agreements used to supply nearly all of Nigeria’s petrol needs as well as cover some of its diesel and jet fuel consumption.
However, in the fresh crude oil term agreements, it was observed that the names of majority of the companies involved in the DSDP deal also appeared in the list of those picked by the national oil company for the crude term contracts.
The list sighted by the media showed that the preferred companies included Sahara Energy Resources Limited, Oando, Duke oil (an NNPC subsidiary), Petrogas, AA Rano, MRS, Mercuria and Vitol.
Other oil and gas concerns which scaled the NNPC selection hurdle were Oceanbed Trading Limited, Levene Energy, Bono Energy , Mocoh Energy, BP Oil, West Africa Gas Limited, Litasco SA, Emadeb, Hyde, Matrix and Brittania-U.
Other names listed by the NNPC as having qualified for the contracts included Masters, AMG, Casiva, Barbedos, Trafigura, Hindustan and Patermina.
NNPC has its own equity share of crude oil from its Joint Ventures (JVs), usually shared on a 60 to 40 basis and thereafter appoints companies and issues licences to lift its share of the oil on a Free on Board (FOB) basis.
The companies and countries nominate ships that transport the crude which is sold in the international market. Sometimes, the NNPC also awards contracts to governments to carry out the business.
In the document approving the qualified countries, China, Niger, Cote D’voire, Ghana, India, Togo, South Africa came tops, while Sierra Leone, Liberia, Turkey, Senegal, and Fujaira also made the cut.
Typically, entities qualified to take part in the contract bid are divided into four categories, namely a bonafide end user who owns a refinery and or retail outlets that can process Nigerian crude oil grades.
For the government to government contracts, or what is termed “bilateral relationships”, with what the corporation terms “high energy consuming nations”, bidding nations must provide proof that the entity is wholly owned by the relevant country or provide evidence of a bilateral agreement with the designated nation.
The third category is the internationally established and globally recognised large volume crude oil traders, while the fourth classification are indigenous companies engaged in Nigeria oil and gas downstream business activities.
In addition, qualifying foreign companies must demonstrate a minimum annual turnover of $500 million or the naira equivalent and a net worth of not less than $250 million or the naira equivalent for the previous financial year.
For indigenous firms, they are required to have a minimum turnover of $200 million or the naira equivalent and a net worth of $100 million for the preceding financial year ending.
Bidders are also to show their ability to handle supplies of crude and must list facilities and products processed or sold over the last three years, in addition to disclosing links to NNPC or the Bureau of Public Procurement (BPE) and confirming that directors have not been convicted of fraud or financial impropriety.
As with all Nigerian tenders, NNPC also highlights that the local content law must be strictly adhered to in terms of, among others, the use of Nigerian shipping companies, insurance and banks where possible.
In the past, Civil Society Organisations (CSOs) in the country’s oil and gas space had argued that G2G contracts with smaller, non-refining countries have high governance risks and low policy benefits for Nigeria.
For instance the Nigeria Natural Resource Charter (NNRC) has asked that term contracts should be carried out through a transparent and competitive tender process that includes robust pre-qualification standards and an end of sales to smaller non-refining countries unless NNPC can publicly explain the deals’ policy benefits.
Oil in Tight Range as Asia’s COVID-19 Restrictions Weigh on Sentiment
Oil prices were mixed in a tight range on Monday after the recovery of a major U.S. pipeline network eased concerns over supply, though fresh restrictions in Asia amid surging COVID-19 cases weighed on sentiment.
Gasoline shortages that have plagued the U.S. East Coast slowly eased on Sunday, with 1,000 more stations receiving supplies as Colonial Pipeline’s 5,500-mile (8,900-km) system recovered from a crippling cyberattack.
Brent crude oil futures were up 3 cents at $68.74 a barrel as of 0511 GMT, and West Texas Intermediate (WTI) crude was up 8 cents, or 0.1%, at $65.45.
The two contracts jumped nearly 2.5% on Friday and managed to book a small gain last week, marking a third consecutive weekly increase.
“The market has no clear direction today though a new wave of restrictions to curb the pandemic in Asia is chilling the market mood,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.
Investors remained cautious on worries that the highly transmissible coronavirus variant first detected in India is spreading to other countries.
Some Indian states said on Sunday they would extend COVID-19 lockdowns to help contain the pandemic, which has killed more than 270,000 people in the country. There are fears that the nation’s annual budget may fall flat as it did not account for a crippling second wave of COVID-19 infections.
Singapore warned on Sunday that new coronavirus variants were affecting more children, as the city-state prepares to shut most schools from this week, while Japan has declared a state of emergency in three more prefectures hit hard by the pandemic.
Disappointing retail data from China also added to pressure, Rakuten’s Yoshida said. Chinese retail sales rose 17.7% in April on a year ago, short of forecasts for a jump of 24.8%.
China’s crude oil throughput rose 7.5% in April from the same month a year ago, but remained off the peak seen in the last quarter of 2020.
“With growing concerns over the spreading pandemic in Asia, Brent prices are expected to stay in a trading range this week, with support expected at around $63 a barrel,” said Kazuhiko Saito, chief analyst at commodities broker Fujitomi Co.
Meanwhile, U.S. energy firms added oil and natural gas rigs for a third week in a row as higher crude prices prompt some drillers to return to the wellpad, energy services firm Baker Hughes Co said on Friday.
In the Middle East, Israel and Gaza’s ruling Hamas militant group faced mounting international calls for a ceasefire in hostilities that entered their second week on Monday with no end in sight.
“As long as the fight does not spill over to oil-producing countries in the region, there will be limited impact on the oil market,” Fujitomi’s Saito said.
Oil Prices Decline on Rising India COVID-19 Cases, U.S Inflation Concerns
Global oil prices extended a decline on Friday following a 3 percent drop on Thursday as coronavirus cases rose in India, one of the world’s largest oil consumers.
Brent crude oil, against which Nigerian oil is priced, declined by 35 cents or 0.5 percent to $66.70 a barrel at 5 am Nigerian time on Tuesday while the U.S West Texas Intermediate (WTI) fell by 28 cents or 0.4 percent to $63.54 per barrel.
“The commodity super cycle rally just hit a hard stop and the energy market doesn’t know what to make of Wall Street’s fixation over inflation and the slow flattening of the curve in India,” said Edward Moya, senior market analyst at OANDA.
“The crude demand story is still upbeat for the second half of the year and that should prevent any significant dips in oil prices,” he added.
Prices dropped over a series of key economic data that stoke inflation concerns and forced experts to start thinking the Federal Reserve could raise interest rates to curb the surge in inflation.
An increase in interest rates typically boosts the U.S. dollar, which in turn pressures oil prices because it makes crude oil more expensive for holders of other currencies.
This coupled with the fact that India, the world’s third-largest oil consumer, recorded more than 4,000 COVID-19 deaths for a second straight day on Thursday, dragged on the oil outlook in the near term.
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