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Oil Rises but Set for 5% Weekly Drop as Delta Variant Spreads

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Oil prices steadied on Friday, clambering away from three-month lows, but they were still on track for a weekly loss of more than 5% as new lockdowns in countries facing surging cases of the COVID-19 Delta variant dampened the outlook for fuel demand.

Broader investor risk aversion also weighed on oil with the U.S. dollar jumping to a nine-month high on signs the U.S. Federal Reserve is considering reducing stimulus this year.

“The spread of the Delta variant amid moderating economic growth and the prospects of tighter monetary policy are creating short-term ripples in the commodity market,” ANZ commodity analysts said in a note.

“Increasing restrictions on mobility are raising concerns for oil demand.”

Brent crude futures rose 24 cents or 0.4% to $66.69 a barrel at 0635 GMT, after dropping 2.6% on Thursday to its lowest close since May.

U.S. West Texas Intermediate (WTI) crude futures for September, due to expire on Friday, rose 38 cents or 0.6% to $64.07 a barrel , after sliding 2.7% on Thursday. The more active October contract was up 26 cents at $63.76 per barrel.

“The latest lockdowns in major economies around the world has likely harmed the economic activities and growth forecasts in the months to come,” said Margaret Yang, a strategist at Singapore-based DailyFX.

“Japan has extended its emergency lockdown and confirmed cases are on the rise in countries such as South Korea, Malaysia, Philippines, Vietnam and Thailand, whose industries need oil, which will also be affected by the Delta variant,” Yang added.

China has imposed new restrictions with its “zero tolerance” coronavirus policy, affecting shipping and global supply chains, and the United States and China have imposed tit-for-tat flight capacity restrictions.

Meanwhile Delta variant outbreaks in Australia and New Zealand have also sparked strict lockdowns.

The approaching end of the U.S. peak gasoline demand season and end of summer holidays in Europe and the United States are also set to sap oil demand.

“Aviation remains the weakest component of global demand at the moment, and the risk of further restrictions on domestic and international travel due to the Delta variant will be a key variable for oil over the remainder of H2, particularly as the U.S. driving season ends,” said Stephen Innes, managing partner of SPI Asset Management.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Crude Oil Drops as U.S Dollar Extends Gain

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Oil prices declined on Monday after the United States Dollar rose to a three-week high and the U.S oil rig count increased amid drop in U.S. Gulf of Mexico output.

Brent crude oil, against which Nigerian crude oil is priced, sheds $1.03 or 1.37 percent to $74.31 per barrel at 9.38 am Nigerian time. While the U.S West Texas Intermediate oil declined by $1.18 or 1.64 per barrel to $70.79 a barrel.

The recent increase in dollar strength against global currencies has dragged on crude oil outlook as energy investors cut down on imports to avoid possible market headwinds. Strong U.S. dollar priced crude oil is more expensive for holders of other currencies.

U.S dollar rose to a three-week high after retail sales unexpected rose by 0.7 percent in the month of August. The increase bolstered expectations that the U.S Federal Reserve will start cuttiing down on asset purchases later this year.

“U.S. consumption is not slowing as quickly as it appeared a month ago despite the fading stimulus, and the Delta variant did not much affect the industries feeding into retail sales,” said Chris Low, chief economist at FHN Financial in New York. “The economy continued to hum in August.”

According to the researchers at ING Bank, strong US dollar over the last few days has provided some headwinds to the market.

Also, an increase in U.S rig count to 512 in the week ended September 17, 2021 clouded the oil market. Oil rige rose by 9, the highest since April 2020.

Still, as at Friday 23 percent of U.S. Gulf of Mexico crude output, or 422,078 barrels per day, remained shut, stated the Bureau of Safety and Environmental Enforcement.

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Oil Slips With Energy Prices in Europe Halts Record Rally

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Oil dipped toward $72 a barrel in New York after prices of energy commodities in Europe halted a record-breaking run.

West Texas Intermediate futures fell 0.6%, having reached the highest intraday level since early August on Wednesday. A rally in European gas and power prices to unprecedented levels was set to end as industries were starting to curb consumption. The surge in energy rates could temporarily boost diesel demand by as much as 2 million barrels a day as consumers switch fuels, according to Citigroup Inc.

Still, the bullish signals for oil are continuing to increase. U.S. crude inventories dropped by more than 6 million barrels last week to a two-year low, according to government figures, as coronavirus vaccination programs permit economies to reopen. Chevron Corp. Chief Executive Officer Mike Wirth warned that the world is facing high energy prices for the foreseeable future.

The investor optimism is showing up in key oil time spreads widening. Trading of bullish Brent options also surged to a two-month high on Wednesday.

Prices have been pushed higher in recent days “by supply outages combined with expectations of switching from gas to oil in the power sector,” said Helge Andre Martinsen, a senior oil market analyst at DNB Bank ASA. “We still believe in softer prices toward year-end and early next year as curtailed production returns and OPEC+ continues to increase production.”

Strong prices for gas, liquefied natural gas and oil are expected to last “for a while” as producers resist the urge to drill again, Chevron’s Wirth told Bloomberg News. Norway’s Equinor ASA said Thursday it also expects European gas prices to remain high over winter.

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Nigeria Sets Up N20B Oil Sector Research Fund

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The minister of State for Petroleum Resources, Timipre Sylva, has launched a US$50 million Nigerian Content Research and Development (R&D) fund, this is seen as a breath of fresh air in a country where funding for research has been lacking.

The launching of the fund by the Nigerian Content Development and Monitoring Board (NCDMB) was also an occasion for the commissioning of the Board’s Technology Incubation and Innovation Center located within the Board’s Tower in Yenogoa, Bayelsa.

The minister said through a representative said the fund would be used to create research centers of excellence, finance research commercialisation, funding support for basic and applied research and endowment of professorial chairs in universities and research institutions in the country.

Nigeria spends only about 0.2 percent of its Gross Domestic Product on research and development annually as against developed and some developing countries that spend between 2.5 to 4 percent and between 0.7 and to 1.2 percent of their annual GDP respectively on research and development.

Sylva said that the continued underfunding of research and development in Nigeria has continued to reflect on the country’s overdependence on foreign goods and services.

”This is unsustainable if we are serious about building a national technological capability that will drive economic growth,” he said.

The minister, therefore, urged oil and gas operating and service companies and other members of the private sector to embrace investment in R&D as a key component of their business model in order to complement the NCDMB effort.

While commissioning the Technology Incubation and Innovation Center, Sylva said that the center will provide a formidable platform for the generation, incubation and acceleration of innovative ideas to the world marketplace.

He said innovations start from the creation of ecosystems where ideas can connect and challenged various industry stakeholders and youths to utilize the Center to solidify adaptation of existing solutions and also create new solutions that address major industry challenges in the country.

Sylva reconstituted the Nigerian Content Research and Development Council, NCRDC. The council consists of delegates from three key groups including the Government, Industry and Academia.

The council offers policies that shape the direction of NCDMB’s research interventions with a membership that includes representatives of the Petroleum Technology Association of Nigeria, PETAN, Oil Producers Trade Section, OPTS and the Petroleum Contractors Trade Section, PCTS.

Other statutory members include the National Universities Commission, NUC, the National Board for Technology Incubation, NBTI and the National Office for Technology Acquisition and Promotion, NOTAP.

Speaking earlier during his presentation, Simbi Kesiye Wabote, the Executive Secretary of NCDMB, noted that research and development are integral to the growth and development of any nation as it plays an important role in opening new chapters of modern life.

Wabote however regretted that African nations accounted for less than 1 percent of what is spent on R&D globally, adding that the continent’s aggregate GDP is only 3 percent of the global GDP.

“There is a nexus between what is spent on research and development and economic prosperity. It is time to start nurturing the growth of our home-grown technology rather than just being a wholesome consumer of other people’s innovation,” he said.

According to Wabote, another reason NCDMB is channeling its efforts on research and development is that it is one of the six parameters which are essential for sustainable local content practice.

Other five parameters for sustainable local content development according to him include an enabling regulatory framework, periodic gap analysis, structured capacity building and fiscal and monetary incentives to attract new investments and keep existing businesses afloat as well as create access to the market to enhance patronage of goods and services generated from established capacities.

He further explained that another reason the Board is promoting research and development in the oil and gas industry is that it is in line with the provisions of the Nigerian Oil and Gas Industry Content Development, NOGICD, Act of 2010.

“The authors of the Nigerian Oil and Gas Industry Content Development Act of 2010 recognized the importance of Research and Development and included key provisions in the Act. Specifically, Sections 36, 37, 38, and 39, of the NOGICD Act are dedicated to promoting Research and Development,” Wabote said.

He also noted that research and development is a major feature of the Board’s 10-Year Strategic roadmap that seeks to increase the level of Nigerian content in the oil and gas industry to 70 percent by the year 2027.

He said, “The 10-Year Roadmap consists of five pillars and four enablers. The pillar on Technical Capability Development contains initiatives to further drive the delivery of Research and Development in the oil and gas industry.

The enabler on research and statistics cover the initiatives required to conduct research in key areas to generate new evidence to address industry knowledge gaps and operational challenges.”

Wabote said the Board would soon embark on a roadshow to showcase its research and development initiatives to the various stakeholder groups in the country, including universities that represent a key constituency; saying that the Board was set to move fully into the implementation phase of its initiatives to derive better results from the intellect of Nigerians in the academia, research institutions, and technology hubs.

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