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Oil Slips as OPEC+ Considers Boosting Output in Tight Market

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Oil prices dropped on Friday on the prospect that the OPEC+ supplier alliance might step up a planned increase in output to ease supply concerns, with soaring gas prices spurring power producers to switch from gas to oil.

Brent crude futures fell 7 cents, or 0.1%, to $78.24 a barrel at 0415 GMT, but were still heading for a small rise on the week, marking a fourth straight week of gains.

U.S. West Texas Intermediate (WTI) crude futures slipped 6 cents to $74.97 a barrel, though the contract remained on track to post a sixth consecutive week of rises.

All eyes are now on a meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, together known as OPEC+, on Monday, where producers will discuss whether to go beyond their existing deal to boost production by 400,000 barrels per day (bpd) in November and December.

Four OPEC+ sources said adding more oil was being looked at as a scenario, without giving details on volumes or dates, against a backdrop of oil hovering near a three-year high and pressure from consumers for more supply.

“There is a chance they might further raise output given how high prices are,” said Howie Lee, an economist at Singapore’s OCBC bank.

“Last time we saw $80, supply was considerably more than where we are right now and I think the world could do with some extra barrels now given the global energy crunch.”

ANZ Research analysts said in a note: “The upcoming OPEC+ meeting on Monday will be crucial for oil price direction next week. A production increase beyond 400,000 bpd would see some short-term relief.”

In the United States the Biden administration’s concern about high oil prices was on the agenda for a meeting between U.S. national security adviser Jake Sullivan and Saudi Crown Prince Mohammed bin Salman earlier this week, White House press secretary Jen Psaki said.

With natural gas prices soaring globally, power producers have been turning to fuel oil or diesel instead of gas, yanking oil prices higher. Generators in Pakistan, Bangladesh and the Middle East have already started switching fuels.

“This suggests that we should see strong oil demand in the coming months, which means a tighter-than-expected oil market through until the end of the year,” ING commodity analysts said in a note.

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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Nigeria’s Oil Production Rises by 25,000 Barrels Daily, Hits 1.276 Million BPD in July

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Nigeria’s daily oil production increased in July by 25,000 barrels per day to 1.276 million barrels per day (mbpd).

This development was disclosed by the Organisation of the Petroleum Exporting Countries (OPEC) in its Monthly Oil Market Report for June, based on direct communication with the Nigerian government.

In April, production was recorded at 1.28mbpd, but it fell to 1.25mbpd in May.

Secondary sources cited by OPEC indicated a slight decrease from 1.37mbpd in May to 1.36mbpd in June.

This disparity shows Nigeria’s challenges in maintaining a steady increase in oil production.

Mele Kyari, Group Chief Executive Officer of the Nigeria National Petroleum Company Limited (NNPC), had previously stated that crude production was approaching 1.7mbpd in May.

Kyari emphasized the potential for higher production levels, recalling that during the COVID-19 pandemic in April 2020, Nigeria’s production reached 2.2mbpd without new drilling activities.

The drop in production since then has been attributed to various factors, including theft and vandalism of oil infrastructure.

Despite these challenges, Nigeria’s oil production saw a marginal increase in April, rising from 1.23mbpd in March to 1.28mbpd, according to OPEC data.

This increase followed a significant drop from 1.32mbpd in February to 1.23mbpd in March.

Stakeholders have expressed concern over the persistent decline in production and its impact on revenue.

In response, the NNPC declared a state of emergency on oil production, aiming to address the factors hindering output.

At the Nigeria Oil and Gas Conference and Exhibition Week in Abuja, Kyari reaffirmed the NNPC’s commitment to tackling production challenges.

“We have declared war on the challenges affecting our crude oil production. We know what to fight, we have the right tools, and we are working with our partners to improve the situation,” Kyari stated.

The recent increase in daily oil production is a positive development for Nigeria’s oil sector, but sustained efforts are required to achieve long-term stability and growth in production levels.

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Oil Prices Climb as U.S. Inflation Eases, Brent Hits $86

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Oil prices rose on Friday after traders noticed signs of easing inflationary pressures in the United States, the world’s largest oil consumer.

Brent crude oil, against which Nigerian oil is priced, had risen by 72 cents, or 0.8% to $86.12 a barrel.

Meanwhile, U.S. West Texas Intermediate (WTI) crude oil climbed by 85 cents, or 1%, to $83.47 a barrel. Both contracts had also gained in the prior two sessions.

Despite these gains, Brent crude oil was poised to fall by about 1% week-on-week after four consecutive weekly increases.

WTI crude oil, on the other hand, remained broadly stable on a weekly basis.

Investor confidence was boosted after data released on Thursday showed that U.S. consumer prices fell in June, fueling hopes that the Federal Reserve might cut interest rates soon.

Lower rates are expected to spur economic growth, thereby increasing fuel consumption.

However, the market is still awaiting more definitive signs of action. While Federal Reserve Chair Jerome Powell acknowledged the recent trend of improving price pressures, he told lawmakers that more data would be needed to strengthen the case for rate cuts.

“Cooling U.S. inflation numbers may support the case for the Fed to kick-start its policy easing process earlier rather than later, but it also adds to the series of downside surprises in U.S. economic data, which points to a clear weakening of the U.S. economy,” said Yeap Jun Rong, a market strategist at IG.

In addition to inflation data, indications of strong summer fuel demand in the U.S. also supported prices. U.S. gasoline demand was at 9.4 million barrels per day (bpd) in the week ended July 5, the highest level since 2019 for the week that includes the Independence Day holiday, according to government data released on Wednesday.

Jet fuel demand on a four-week average basis was at its strongest since January 2020.

“The market will remain range-bound, paralyzed by opposing forces of expected demand recovery fueled by anticipation of a strong summer for fuel consumption … but sentiment remains pegged by ongoing economic weakness and uncertain demand recovery,” said Emril Jamil, a senior oil analyst at LSEG.

The strong fuel demand encouraged U.S. refiners to ramp up activity and draw from crude oil stockpiles. U.S. Gulf Coast refiners’ net input of crude rose last week to more than 9.4 million bpd for the first time since January 2019, government data showed.

However, weaker demand signs from China, the world’s largest oil importer, could counter the positive outlook from the U.S. and weigh on prices.

“The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11% in June from the previous year,” said Tamas Varga of oil broker PVM.

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NUPRC and Oil Producers Agree on Market Price Sales for Domestic Crude Supply

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Dangote Refinery

The Federal Government, through the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), has reached an agreement with oil producers to permit the sale of crude oil to domestic refiners at market prices.

This resolution brings an end to a protracted supply dispute that has strained relations with international oil companies (IOCs).

The NUPRC explained that pricing issues should not hinder domestic refining, adding that it is committed to preventing “crude supply profiteering” while ensuring oil production remains profitable.

Gbenga Komolafe, Chief Executive of the NUPRC, said the regulator’s responsibility is to balance upstream development with a sustainable domestic energy supply chain.

“We will never allow price strangulation to disincentivize our domestic refining capacity optimization,” Komolafe said. To ensure transparency, he requested monthly cargo price quotes on crude oil supply and delivery from both producers and refiners.

Earlier this year, the NUPRC directed local and international oil companies to prioritize supplying crude oil to local refineries.

The regulator set a target of 483,000 barrels to local refineries, with the Dangote refinery expected to receive 325,000 barrels daily.

The Warri and Port Harcourt refineries are slated to receive 75,000 and 54,000 barrels per day, respectively, while smaller refineries like Waltersmith, OPAC, and Niger Delta Petroleum Refinery are set to receive 10,000 barrels per day or less.

In April, the NUPRC mandated that all oil companies in Nigeria supply crude oil to domestic refineries unable to source it locally before exporting any surplus.

The Petroleum Industry Act (PIA) mandates that IOCs must first meet local demand by supplying crude oil to domestic refineries before exporting any surplus.

Last month, Devakumar Edwin, Vice President of Oil and Gas at Dangote Industries Limited (DIL), accused IOCs in Nigeria of deliberately attempting to undermine the Dangote Oil Refinery and Petrochemicals.

Edwin claimed that IOCs were inflating premium prices above market rates, forcing the refinery to import crude from distant countries like the United States, resulting in significantly higher costs.

The Dangote refinery, with a capacity of 650,000 barrels per day, is expected to significantly reduce Nigeria’s dependence on imported petrol, especially in the era of post-subsidy removal.

The NUPRC’s agreement with oil producers to sell crude at market prices is a pivotal step in strengthening the country’s refining capacity and ensuring a stable domestic energy supply.

This move is anticipated to bolster Nigeria’s oil industry and contribute to the nation’s economic stability.

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