OPEC+ left oil consumers in limbo, sticking to its plan of monthly production increases until July but refusing to give any hints about further moves until there’s clear evidence more crude is needed.
“The demand picture has shown clear signs of improvement,” Saudi Energy Minister Prince Abdulaziz bin Salman said, in some of his most upbeat comments since the price crash last year. But pressed on whether more supply increases will be needed, he said: “I will believe it when I see it.”
The wait-and-see approach indicates that OPEC+ is likely to err on the side of caution, potentially responding too late if the energy market tightens rapidly, as OPEC itself is forecasting. The risk for the broader economy is faster inflation just as it’s recovering from the pandemic.
Hours before oil producers gathered virtually, the International Energy Agency warned of a looming gap between rising demand and stagnant supply in the second half of the year, putting upward pressure on prices.
“Demand growth is outpacing supply gains even with the agreed month-by-month OPEC+ production increases taken into account,” said Ann-Louise Hittle, oil analyst at consultant Wood Mackenzie Ltd.
The IEA, which advises Western countries on energy policy, forecast that global oil demand will jump roughly 5 million barrels a day — the equivalent of the production of Kuwait and the United Arab Emirates — between now and the end of the year.
With Brent crude rising above $70 a barrel on Tuesday, OPEC+ is now at the center of one of the most pressing debates in global markets: the threat of inflation. From the U.S. Federal Reserve to the People’s Bank of China, central bankers are starting to sweat about rising prices, particularly for commodities such as steel and lumber that later filter into the cost of everyday goods. Prince Abdulaziz said that Saudi Arabia, Russia and other oil producers weren’t to blame, with oil having a “minuscule” impact.
And yet, Western consumers are feeling the pinch. In America, average retail gasoline prices rose to a six-year high above $3 per gallon over the Memorial Day weekend, which traditionally marks the start of the summer driving season.
“This inflation issue is not going away,” said Bill Farren-Price, a director at research firm Enverus and veteran observer of the cartel. “If OPEC+ are smart they will start to worry about the risk of demand being eroded as oil gets into the $70s.”
For Prince Abdulaziz, the concern about inflation marks a welcome turn-around for the oil market, however. The veteran Saudi minister has spent the year leading an often unruly coalition of oil producing nations that cut production significantly and only recently has started to boost output in response to higher demand and rising prices. Rather than high oil prices, OPEC+ has been battling with ultra-low ones for most of 2020 and early 2021. At one point last year, West Texas Intermediate traded in negative territory, with producers having to pay consumers.
The experience of the last year has left deep scars within the coalition. And Saudi Arabia has reason to be cautious about the second half, with the outlook dependent on two hard-to-predict factors: the coronavirus and nuclear talks between Tehran and Washington.
While oil demand is improving in the Americas and Europe, the opposite is happening in Asia as the spread of new variants prompts lockdowns from India to Japan, Vietnam and Malaysia.
“Covid-19 is a persistent and unpredictable foe, and vicious mutations remain a threat,” OPEC Secretary-General Mohammad Barkindo said.
The nuclear talks, which diplomats initially said were aiming for a deal by June, appear more complicated than anticipated. Iran and the U.S. will probably need more time to iron out their differences, with a deal potentially delayed until August.
“They’re going to wait and see what happens with Iran. If Iran does get delayed and if demand picks up as we expect, then OPEC will need to bring barrels back,” said Amrita Sen, chief oil analyst at consultant Energy Aspects.
Prince Abdulaziz is probably also waiting for the market to digest all the new oil that Saudi Arabia and the rest of the OPEC+ is adding. In May, the cartel added 600,000 barrels a day extra. This month it will increase another 700,000 barrels a day, and in July nearly 850,000 barrels more. The impact will only be felt later this summer.
But the wait-and-see approach presents a problem for consumers: refiners unsure of OPEC’s next moves may rush into the spot market before prices rise further. And as prices go higher, others refiners will do the same, creating a spiral. There are signs investors are already expecting that to happen.
New COVID Variant: Brent Crude Sheds Over $10 to $72 Per Barrel
Brent crude oil extended decline by over $10 on Friday on concerns that a new COVID variant called B.1.1.529 could force economies to impose restrictions and slow down global demand.
Brent crude, against which Nigerian crude oil is measured, dropped from $82.55 per barrel it attained on Thursday to as low as $72.09 on Friday at 7:20 pm Nigerian time before it rebounded slightly to $72.98 per barrel as shown below.
Global financial markets plunged across the board following reports that two cases of the new heavily mutated COVID variant from South Africa have been reported in Hong Kong and that the United Kingdom, one of the most affected nations during COVID-19 with over 140,000 deaths has halted flights from six South African nations to prevent a potential breakout of the new COVID variant.
Experts are concerned that the new variant outbreak would slow down global growth and increase global risks going into the new year.
According to Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA, “Even without severe restrictions, people will adopt more caution which will weigh on demand, as OPEC+ has repeatedly stated and factored into their models.”
However, heavy crude oil-consuming nations like the United States, China and others that have been calling for more supply will now enjoy substantial price reduction if this continues, therefore, Joe Biden may not need to release millions of barrels into the global market.
“Crude is back at levels last seen at the start of October and if this risk aversion continues in the weeks ahead, there’s plenty of room to fall. While OPEC+ would likely have avoided altering production plans next week or in the months following in response to the SPR releases, it may soon feel its hand is being forced. Next week may come too soon but another major outbreak could see them slam on the brakes,” Craig Erlam added.
Concerns Over New COVID Variant Plunges Brent Crude Oil Below $80 a Barrel
Concerns over rising new COVID variant in South Africa, Asia and other regions weighed on Brent crude oil and other financial assets on Friday.
The heavily mutated COVID variant called B.1.1.529 plunged Brent crude oil, against which Nigerian crude oil is priced, by almost 4 percent on Friday to trade below $80 a barrel for the first in months.
Brent crude dropped $3.16 or 3.8 percent to $79.06 per barrel while the US West Texas Intermediate (WTI) sheds $3.45 or 4.4 percent to $74.94 a barrel.
“Oil prices have gapped lower in Asia as the South African variant sparks’ growth fears, sending a wave of selling through Asian energy markets. Although gas and coal prices are holding steady, oil prices have tumbled,” stated Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.
Commodity prices dropped after the United Kingdom announced it has halted all flights from six South African nations. In Hong Kong, two cases of the new variant were detected on Friday.
“With US markets closed for holidays, investors are voting with their feet this morning. The one bull in the China shop that could truly derail the global recovery has always been a new strain of Covid-19 that swept the world and caused the reimposition of mass social retractions.”
This was coming two days after U.S President Joe Biden announced his administration plans to release millions of barrels of oil from strategic reserves to cool rising crude oil prices and rein in fuel price in the world’s largest economy.
Global financial markets experts are worried that the new variant will slow down global growth and force economies to start shutting down following the U.K announcement on Thursday.
Today, investors across the world will be paying attention to the outcome of meeting between WHO and South African officials, and the evolution of the B.1.1.529 variant. This will dictate market reaction for next week.
Nembe Oil Spill: FG Halts Aiteo From Operating Oilfield in Bayelsa
Following the damages done by AITEO leaking oil pipe to the people of Nembe community in Bayelsa state, the Federal Government has halted all operations in the affected area until a proper investigation had been conducted.
The Ministry of Environment disclosed this in a statement signed by Mr. Saghir el Mohammed, Press Director, Ministry of Environment, on Tuesday in Abuja.
Mohammed stated that the federal government had taken a proactive measure to assess the damages done by Aiteo oil spillage to the people of Nembe Local Government Area of Bayelsa State and ensure safety of lives and properties.
The statement reads, “The Federal Government has directed the exploration company, AITEO Eastern Exploration and Production Company Limited (AEEPCo), to halt operations in the area until a proper investigation is carried out.
“Also, adequate measures will as well put in place to ensure the safety of lives and property in the area.
“It can be recalled that the spill occurred on Nov. 5, 2021, in a form of a fountain within the proximity of Opu Nembe Community at Well 1, Well Head located at the Southern Field of Sant Barbara.
“Upon receipt of the report of the incident, a Joint Investigation Team (JIT) comprising the National Oil Spill Detection and Response Agency (NOSDRA), Nigerian Upstream Petroleum Regulatory Commission (NUPRC), was set up.
“Also, the state Ministry of Environment, Community representatives and Aiteo Eastern Exploration and Production Company was set up on Nov. 6, 2021 to immediately address the situation.
“The exercise was inclusive because of inaccessibility to the wellhead location due to the hydrocarbon fumes that saturated the atmosphere in the area.
“Consequently, the JIT directed AEEPCo to shut down in the impacted asset (well head) for appropriate oil spilI response.
Accordingly, AEEPCo deployed booms and skimmers to contain the spill crude oil from spreading.
“As at Nov. 10, 2021, efforts to shut the well has proven difficult due to inaccessibility.
“Meanwhile, in an effort to safeguard the environment and livelihood, staff from the NOSDRA’s Yenagoa Field Office were deployed to the site to monitor and give a progress reports on the measures being taken to address the issue.
“There is further directives to AEEPCo to engage all relevant stakeholders in the spilled oil recovery process.
“In this vein, 3,000 barrels of emulsified crude oil have been recovered and held in a recovery barge.
“Also, additional booms were deployed by the Clean Nigeria Association (CNA) System to work with the on-site recovery contractor.
“Further effort yielded result as containment and recovery within the leak area have been reinforced by Nov. 15,” he said.
Mohammed said that the CNA has mobilised to site for enhanced containment and recovery.
He added that boot and coots, mobilised for well control and securing and AEEPCo has secured temporary work permit for expatriates expected in the country for the activity.
According to him, based on JIT reports, a well control company (Kenyon International) was at the incident location for an on-site assessment.
“Meanwhile, containment and recovery are still on-going. It is instructive to note that the wellhead experts have arrived Nigeria and will commence work on killing the well.
“However, in order to ensure safety and guarantee future operations in the area by AEEPCo, NOSDRA has mandated the company to carry out concrete actions.
“The action is to address the situation that includes clean-up of impacted areas, remediation of spill site as well as damage assessment and post-spill impact assessment.
“NOSDRA, through the Federal Ministry of Environment, will keep the public informed on future developments on the spill incident with an effort to contain further spread and limit the effect on the environment.
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