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OPEC+ Gives Little Away as It Sees Oil Market Tightening

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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.

Atomic Diplomacy

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.

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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Crude Oil

Oil Prices Slide as U.S. Crude Stockpiles Surge, Heightening Demand Concerns

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Oil prices declined on Thursday as concerns over demand intensified due to a larger-than-anticipated build in U.S. crude stockpiles.

Brent crude oil, against which Nigerian oil is priced, dropped by 0.5% to $83.25 a barrel while U.S. West Texas Intermediate crude oil fell by 0.3% to $78.28 a barrel.

The Energy Information Administration’s report revealed a substantial increase in U.S. crude oil stockpiles by 4.2 million barrels to 447.2 million barrels for the week ending February 23rd.

This surge surpassed analysts’ expectations and marked the fifth consecutive week of rising inventories.

While gasoline and distillate inventories witnessed a decline, concerns regarding a sluggish economy and reduced oil demand in the U.S. were amplified.

Satoru Yoshida, a commodity analyst with Rakuten Securities, highlighted that the significant stockpiles have heightened investor worries.

Moreover, the anticipation of delayed U.S. interest rate cuts further weighed on market sentiment, potentially undermining oil demand.

Traders have adjusted their expectations for rate cuts, with an easing cycle predicted to commence in June rather than March as previously anticipated.

Market participants await the U.S. personal consumption expenditures price index for insights into inflation trends, while the possibility of an extension of voluntary oil output cuts from OPEC+ looms over price dynamics, amid lingering uncertainty in the demand outlook and geopolitical tensions in the Middle East.

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Crude Oil Shortage Threatens Dangote, Government Refineries, Minister Raises Alarm

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Dangote Refinery

The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has sounded a clarion call over a looming crude oil shortage that threatens the operations of the newly inaugurated Dangote Petrochemical Refinery and government-owned refineries in Nigeria.

Addressing stakeholders at the seventh edition of the Nigeria International Energy Summit in Abuja, Minister Lokpobiri expressed concerns that unless deliberate efforts are made to increase investments and crude oil production, these refineries may struggle to obtain enough feedstock for petroleum product manufacturing.

The Dangote refinery, a colossal project spearheaded by Dangote Industries Limited, has a daily requirement of up to 650,000 barrels of crude oil, while government-owned refineries could need approximately 400,000 barrels.

However, the current pace of crude oil production and investment in Nigeria falls short of meeting these demands.

Minister Lokpobiri highlighted the need to ramp up production and attract investments in the upstream sector to ensure adequate feedstock supply for the refineries.

He emphasized the importance of efficiently utilizing Nigeria’s abundant oil and gas reserves to enhance domestic energy security and economic prosperity.

Furthermore, the minister underscored the significance of investing in energy infrastructure and transitioning towards more environmentally friendly practices to address Nigeria’s energy needs effectively.

The alarm raised by Minister Lokpobiri underscores the urgency for strategic interventions and collaborative efforts to mitigate the impending crude oil shortage and secure the future of Nigeria’s refining industry amidst evolving global energy dynamics.

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Oil Prices Surge as Brent Approaches $83, WTI Nears $78 Amidst Refinery Buying Activity

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Oil prices surged as Brent crude oil approached the $83 price level while West Texas Intermediate (WTI) neared $78 as refineries in the United States and China increased purchases.

Brent crude oil, against which Nigerian oil is priced, gained 1.1% on Monday, signaling a bullish trend in the oil market.

The recent uptick in oil prices comes amidst signs of heightened demand from refineries, particularly in key markets like the US and China.

This surge in demand has contributed to the strengthening of timespreads, indicating tighter conditions in the near term.

Market observers are closely monitoring the International Energy Week in London, where industry leaders are convening to discuss the outlook for the global energy market.

Scheduled speakers include Russell Hardy, the CEO of Vitol Group, a major player in the energy sector.

While tensions in the Middle East and production cuts by the OPEC+ alliance have supported crude prices, increased production from non-OPEC+ countries, notably the US, has capped potential gains.

Analysts predict that oil prices may continue to trade within a range, with Brent crude expected to hover around $83, while WTI remains near the $78 mark, barring significant shifts in market dynamics.

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