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OPEC+ Sticks To Planned Output Hike as Oil Prices Rebound

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OPEC and its allies are expected to press on with their planned revival of oil production when they meet next week, as prices bounce back from their August stumble.

The coalition led by Saudi Arabia and Russia is gradually restoring the vast amount of crude production halted during the pandemic, and will probably ratify the next monthly installment when it gathers on Sept. 1, according to a Bloomberg survey of traders and analysts. Several OPEC+ delegates privately predict the same outcome.

Crude markets faltered earlier this month as the resurgent pandemic threatened demand in China and the U.S. But prices have since recovered after fuel use proved resilient to the latest coronavirus wave, giving the Organization of Petroleum Exporting Countries and its partners more breathing space.

“Uncertainties over the world economy and the growth recovery in China have largely peeled away,” said Ed Morse, head of commodities research at Citigroup Inc. “There’s good evidence that the bottom in oil prices was temporary and overdone, and if the recovery continues, OPEC+ would likely stick to the plan.”

The cartel has already restarted roughly 45 percent of the unprecedented production volume shuttered last spring. Under a plan spearheaded by Saudi Energy Minister Prince Abdulaziz bin Salman, OPEC+ will return the rest in monthly increments of 400,000 barrels a day through to late 2022.

Seventeen of 22 traders, analysts and refiners surveyed by Bloomberg expected no change to this schedule at Wednesday’s meeting, meaning October’s hike will go ahead as planned.

Under Pressure

The OPEC+ coalition’s careful stewardship of the oil market has kept prices high enough to support the revival of the global petroleum industry, and largely avoided the kind of spike that could threaten the world’s economic recovery.

Yet the group has still faced pressure from all sides.

Earlier this month, its plans for supply increases came into question. International crude prices sank about $11 a barrel — roughly 15 percent — in the first three weeks of August as China reimposed lockdowns. The International Energy Agency, a prominent forecaster, slashed its demand outlook for the rest of the year and warned of a renewed surplus in 2022.

To the surprise of many OPEC-watchers, the group also found itself pulled in the other direction as the White House publicly urged it to revive production more quickly in order to cool elevated gasoline prices. Yet several OPEC+ nations said they didn’t hear of a direct request, and analysts concluded the President Joe Biden’s message was targeted to a domestic audience.

“I think they will send Biden’s call for additional barrels straight to voice-mail,” said Helima Croft, chief commodities strategist at RBC Capital Markets.

Robust Demand

OPEC+ has wrong-footed observers several times this year, freezing supplies when an increase was anticipated and vice versa. But so far this meeting is on track to be a smoother affair than the previous one, allowing the 23-nation OPEC+ alliance to maintain the course.

The group doesn’t face the imminent prospect of renewed supplies from Iran, as talks to lift U.S. sanctions have stalled. And oil demand appears to be robust enough to absorb the extra barrels.

Traffic on China’s typically busy city streets appears to be recovering as the key crude-importing nation quashes a resurgence in Covid-19 cases. In the U.S., gasoline consumption is holding up as drivers try to make the most of the summer holiday season. Flying is even making a comeback in India as people flock to tourist spots after months of lockdown.

Brent crude futures, an international benchmark, have rebounded to $72 a barrel, giving some respite to the battered finances of oil producers.

“As long as the Chinese government appears to have the latest Covid outbreak under control, I think they stay with the current plan and reiterate their ability and willingness to adjust as needed,” said Croft.

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Crude Oil

Oil Prices Climb as Markets Eye Potential US Rate Cuts in September

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Oil prices rose during the Asian trading session today on speculation that the U.S. Federal Reserve may begin cutting interest rates as soon as September.

Brent crude oil, against which Nigerian oil is priced, increased by 32 cents to $82.95 a barrel, while U.S. West Texas Intermediate crude oil climbed 34 cents to $80.47.

The anticipation of rate cuts stems from recent U.S. inflation and labor market data indicating a trend towards disinflation and balanced employment, according to ANZ Research.

The Federal Reserve is set to review its policy on July 30-31, with expectations of holding rates steady but providing clues for potential cuts in September.

The potential rate cuts could stimulate economic activity, increasing demand for oil. This optimism has been partially offset by recent concerns over China’s slower-than-expected economic growth, which could dampen global oil demand.

President Joe Biden’s announcement to not seek re-election and endorse Vice President Kamala Harris had minimal impact on oil markets.

Analysts suggest that U.S. presidential influence on oil production is limited, although a potential Trump presidency could boost oil demand due to his stance against electric vehicles.

In response to economic challenges, China surprised markets by lowering key policy and lending rates. While these measures aim to bolster the economy, analysts remain cautious about their immediate impact on oil demand.

With OPEC+ production cuts continuing to support prices, the focus remains on the U.S. Federal Reserve’s next moves.

Any decision to cut rates could further influence oil prices in the coming months, highlighting the interconnectedness of global economic policies and energy markets.

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Dangote Refinery Clash Threatens Nigeria’s Oil Sector Stability

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Nigeria’s oil and gas sector is facing a new challenge as a dispute between Dangote Industries Limited and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA) intensifies.

The disagreement centers on claims by NMDPRA that diesel from the Dangote Refinery contains high sulfur levels, making it inferior to imported products.

The $20 billion Dangote Refinery, located near Lagos, has the potential to process half of Nigeria’s daily oil output, promising to reduce dependency on foreign fuel imports and create thousands of jobs.

However, the recent accusations have cast a shadow over what should be a significant achievement for Africa’s largest economy.

Industry experts warn that the ongoing conflict could deter future investments in Nigeria’s oil sector.

“Regulatory uncertainty is a major disincentive for investors,” said Luqman Agboola, head of energy at Sofidia Capital. “Any factor affecting foreign investment impacts the entire value chain, risking potential energy deals.”

The regulatory body, led by Farouk Ahmed, maintains that Nigeria cannot rely solely on the Dangote facility to meet its petroleum needs, emphasizing the need for diverse sources.

This position has stirred controversy, with critics accusing the agency of attempting to undermine a vital national asset.

Amidst these tensions, energy analyst Charles Ogbeide described the agency’s comments as reckless, noting that the refinery is still in its commissioning stages and is working to optimize its sulfur output.

In response, Dangote Industries has called for fair assessments of its products, asserting that their diesel meets African standards.

The refinery’s leadership argues that certain factions may have ulterior motives, aiming to stifle progress through misinformation.

As the dispute continues, the broader implications for Nigeria’s oil sector remain uncertain. The outcome will likely influence not only domestic production but also the country’s standing in the global energy market.

Observers hope for a resolution that supports both industrial growth and regulatory integrity, ensuring stability in a sector crucial to Nigeria’s economy.

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Nigeria Pumps 236.2 Million Barrels in First Half of 2024

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Nigeria pumped 236.2 million barrels of crude oil in the first half of 2024, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

This figure represents an increase from the 219.5 million barrels produced during the same period in 2023.

In January, Nigeria produced 44.2 million barrels of crude oil while February saw a slight dip to 38.3 million barrels, with March following closely at 38.1 million barrels.

April and May production stood at 38.4 million barrels and 38.8 million barrels, respectively. June’s output remained consistent at 38.3 million barrels, demonstrating a stable production trend.

Despite the overall increase compared to 2023, the 2024 production figures still fall short of the 302.42 million barrels produced in the same period in 2020.

This ongoing fluctuation underscores the challenges facing Nigeria’s oil sector, which has experienced varying production levels over recent years.

On a daily basis, Nigeria’s crude oil production showed some variability. In January, the average daily production peaked at 1.43 million barrels per day (mbpd), the highest within the six-month period.

February’s production dropped to 1.32 mbpd, with a further decrease to 1.23 mbpd in March. April saw a modest increase to 1.28 mbpd, which then fell again to 1.25 mbpd in May. June ended on a positive note with a slight rise to 1.28 mbpd.

The fluctuations in daily production rates have prompted government and industry leaders to address underlying issues.

Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), has highlighted the detrimental effects of oil theft and vandalism on Nigeria’s production capabilities.

Kyari emphasized that addressing these security challenges is critical to boosting production and attracting investment.

Kyari also noted recent efforts to combat illegal activities, including the removal of over 5,800 illegal connections from pipelines and dismantling more than 6,000 illegal refineries.

He expressed confidence that these measures, combined with ongoing policy reforms, would support Nigeria’s goal of increasing daily production to two million barrels.

The Nigerian government remains focused on stabilizing and enhancing oil production. With recent efforts showing promising results, there is cautious optimism that Nigeria will achieve its production targets.

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