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Crude Oil

US$80 Per Barrel is Relatively Healthy – Coronation Merchant Bank

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Crude oil - Investors King

Last week, Brent Oil briefly hit USD80/b rising by 43% when compared with USD55.9/b recorded at end-Jan 2021. This is also the highest level since October ’18. Oil prices have been rising as a result of supply disruptions and recovering demand due to the opening of economies, vaccination rollouts. Recently, global oil supply has taken a hit from hurricanes Ida and Nicholas passing through the Gulf of Mexico and damaging U.S oil infrastructure. This has contributed to the uptick in oil prices.

The decline in oil prices in 2020 can be largely attributed to the Saudi Arabia and Russia oil price war as well as the economic downturn triggered by the covid-19 pandemic. The pandemic had a severe impact on the global economy. It led to a persistent decline in international oil prices due to the global halt of major production and manufacturing, leading to a decline in demand for oil and a supply glut. Oil prices reached a five-year low of USD21.4/b in 24 April ’20.

According to the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), global oil demand growth in 2021 is unchanged from its assessment in August ‘21.

However, the increased risk of covid-19 cases associated with the Delta variant have affected oil demand prospects, resulting in downward adjustments to Q4 ‘21 estimates.

Global oil demand in 2021 is estimated to average 96.7mbpd compared with the average threshold of 100mbpd. In September, non-OPEC liquids (i.e. petroleum products) supply growth in 2021 was revised down by 0.17mbpd. The revisions are mainly due to outages in North America from a fire on Mexico’s offshore platform and the disruptions caused by Hurricane Ida.

Nigeria’s bonny light crude oil price increased steadily from an average of USD42.1/b in 2020 to USD67.6/b at end-Sep 2021. We note that the oil economy accounted for 7.4% of the country’s real GDP in Q2 ’21, compared to 9.3% in Q1. Oil production has recorded declines of -25% y/y and -6.1%m/m to 1.24mbpd (excluding condensates) in August ’21 compared with the corresponding period in 2020.

Although Nigeria has the capacity to produce 2.5mbpd, average oil production ytd is c.1.35mbpd (excluding 300,000bpd of condensates). This is in compliance with the OPEC+ production quota and below the 1.86mbpd benchmark in the 2021 national budget.

There are several reasons for the suboptimal oil production level in Nigeria. The oil sector is faced with operational issues stemming from poor pipeline networks due to the country’s fragile infrastructure. We note that, over 500 vandalized oil assets were recorded between April ‘20 to April ‘21, significantly stunting production output. Furthermore, based on our estimate Nigeria’s average oil production ytd is 1.35mbpd compared with the current OPEC production quota of 1.6mbpd. Other reasons for suboptimal oil production include the low level of investments into the sector, operational constraints, lack of regulatory reforms, insecurity threats and social unrests in the oil-producing regions.

Ironically, rising oil prices might be a significant problem for Nigeria due to rising costs of the settlement of fuel subsidy receipts. According to the NNPC, to ensure continuous premium motor spirit (PMS) supply and effective distribution across the country, it has made deductions from its contributions to the federation accounts allocation committee (FAAC) in recent months. These deductions include N170.4bn in August, N114.3bn in July, and c. N126bn in June from its FAAC remittance. Over the past nine months, the NNPC contributed N349.3bn to FAAC.

Going forward, the global oil price outlook remains uncertain. However, the U.S. supply constraints are likely to continue to support oil prices, as Ida-related outages could affect U.S. supply till end-2021. Oil price is likely to remain well above USD60/b till end-2021. In consultation with the NNPC and other stakeholders, the budget office of the federation proposed a benchmark oil price of USD57/b for 2022. The underlying market fundamentals, global economic outlook and market sentiments were considered when computing this oil price benchmark.

The OPEC+ supply target for this year is yet to be achieved, some of its members including Nigeria still find it difficult to meet their oil production quotas. There is a need for Nigeria to tackle the current technical and operational challenges to boost production levels. On a brighter note, the recently passed Petroleum Industry Act (PIA) is likely to assist with providing a leg-up for the industry.

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

Oil Falls Slightly as China Steps in to Curb Rising Coal Prices

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Global oil prices moderated slightly on Wednesday following the Chinese government’s decision to curb high coal prices and ensure coal mines function at maximum capacity.

Brent crude, against which Nigerian oil is priced, dropped to $83.98 per barrel at 11:00 am Nigerian time. While the U.S. West Texas Intermediate (WTI) crude fell by 80 cents or 1 percent to $81.20 a barrel.

“China is planning to take steps to combat the steep rises in the domestic coal market … which could put considerable pressure on the coal price there and reverse the fuel switch to oil,” Commerzbank said.

Prices for Chinese coal and other commodities slumped in early trade, which in turn pulled oil down from an uptick earlier in the day.

China’s National Development and Reform Commission said on Tuesday it would bring coal prices back to a reasonable range and crack down on any irregularities that disturb market order or malicious speculation on thermal coal futures. read more

Oil markets in general remain supported on the back of a global coal and gas crunch, which has driven a switch to diesel and fuel oil for power generation.

But the market on Wednesday was also pressured by data from the American Petroleum Institute industry group which showed U.S. crude stocks rose by 3.3 million barrels for the week ended Oct. 15, according to market sources.

That was well above nine analysts’ forecasts for a rise of 1.9 million barrels in crude stocks, in a Reuters poll.

However, U.S. gasoline and distillate inventories, which include diesel, heating oil and jet fuel, fell much more than analysts had expected, pointing to strong demand.

Data from the U.S. Energy Information Administration is due later on Wednesday.

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Oil Prices Hit Multi-year Highs on Monday

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Oil prices hit multi-year highs on Monday buoyed by recovering demand and high natural gas and coal prices encouraging users to switch to fuel oil and diesel for power generation.

Brent crude oil futures were up 59 cents, or 0.7%, to $85.45 a barrel by 0900 GMT, after hitting $86.04, their highest level since October 2018.

U.S. West Texas Intermediate (WTI) crude futures climbed 90 cents, or 1.1%, to $83.18 a barrel, after hitting a $83.73, their highest since October 2014.

Both contracts rose by at least 3% last week.

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts at ANZ bank said in a note, adding that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit, said Edward Moya, senior analyst at OANDA.

“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” he said.

“As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.,” he said.

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to cushion the impact of surging energy costs on industry.

Chinese data showed third-quarter economic growth fell to its lowest level in a year hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

China’s daily crude processing rate in September also fell its lowest level since May 2020 as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

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Crude Oil

Oil and Gas Companies in Nigeria

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Oil - Investors King

Nigeria is an oil reach nation with several oil and gas companies operating in Africa’s largest economy.  However, only ten oil and gas companies are listed on the Nigerian Exchange Limited (NGX).

Before we discuss in detail each of the listed oil and gas companies in Nigeria. A short background on Africa’s largest economy will help throw more light on the significance of the oil and gas companies or the entire oil sector to the Nigerian economy.

Nigeria is a petrol-dollar economy, which means Africa’s most populous nation, sells crude oil and use its proceed to service the economy. In fact, the Nigerian Naira is backed by crude oil like Canadian Dollar and other commodity-dependent economies.

But because the Central Bank of Nigeria (CBN) pegged the Naira against its global counterparts, the local currency does not reflect succinctly the fluctuation in global oil prices like other crude oil-dependent currencies.

Since global oil prices rebounded with the gradual reopening of economies, the oil and gas companies in Nigeria have also rebounded from the 2020 record low of $15 per barrel. The oil and gas sector has gained 62.76 percent from the year to date, according to the NGX Oil and Gas Index.

The index gauge price movements in 10 listed oil and gas companies in Nigeria.  However, there are several oil and gas companies in Nigeria not listed on the Nigerian Exchange Limited.

Oil and Gas Companies Listed on the Nigerian Exchange Limited (NGX)

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