The most recent monthly survey conducted by Reuters has revealed that the Organization of Petroleum Exporting Countries (OPEC) continued to increase its oil production in November under the OPEC+ agreement, but the organization went on pumping less crude oil than its share of the monthly increase just as Nigeria started to see an increase in production.
The country’s oil production had been short until last month when Shell Petroleum Development Company of Nigeria (SPDC) resumed crude exports from the Bonny Light terminal after repairs to a pipeline that had started leaking.
Issues with operation have hindered the country’s crude oil production throughout the second half of the year, with disturbances at other terminals including Forcados, Brass River, Erha, and Qua Iboe.
In the last few months, Nigeria’s production has been below the budgetary benchmark, dropping to 1.37 million barrels per day in October. That rate is 261,000 bpd (barrels per day) below the country’s OPEC+ quota.
Under the OPEC+, the 10 members of the Organization who have been bound by the OPEC+ agreement should be increasing their joint production by 254,000 bpd every month out of the total OPEC+ monthly supply addition of 400,000 bpd.
In November, OPEC’s oil production went up by 220,000 bpd to 27.74 million bpd according to the survey conducted by Reuters. That rise once again fell short of the 254,000 rise which OPEC is expected to implement.
The Reuters survey affirms a trend which began a few months ago, that not all members of the Organization have the ability to produce to their full quotas.
Saudi Arabia, which is OPEC’s top producer and the default leader, saw the biggest increase in production in November. The increase was in line with the country’s target, and the same was seen in Iraq which is OPEC’s second-largest oil producer.
Nigerian production managed a recovery in November from constraints seen in October, but other African oil producers kept on struggling to produce to their targets.
Oil Extends Gain Above $86 Per Barrel Amid Tight Supply
Brent crude oil extended gains above $86.16 per barrel on Monday as global oil investors are projecting that supply will remain tight despite the surge in Libya crude oil production. The increase, they bet would be offset by restraint from top crude oil producers.
Frantic oil buying, driven by supply outages and signs the Omicron coronavirus variant will not be as disruptive to fuel demand as previously feared, has pushed some crude grades to multi-year highs, suggesting the rally in Brent futures could be sustained for a while longer, traders said.
“The bullish sentiment is continuing as (producer group) OPEC+ is not providing enough supply to meet strong global demand,” said Fujitomi Securities analyst Toshitaka Tazawa.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, together known as OPEC+, are gradually relaxing output cuts implemented when demand collapsed in 2020.
But many smaller producers cannot raise supply and others have been wary of pumping too much oil in case of renewed COVID-19 setbacks.
Meanwhile, Libya’s total oil output is back to 1.2 million barrels per day (bpd), according to National Oil Corp. Libyan output was about 900,000 bpd last week owing to a blockade of western oilfields.
“Libya’s oil production had dropped to a good 700,000 bpd at the start of the year, which had played its part in the price rise,” said Commerzbank analyst Carsten Fritsch.
Concerns over supply constraints outweighed the news of China’s possible oil release from reserves, said Fujitomi’s Tazawa.
Sources told Reuters that China plans to release oil reserves around the Lunar New Year holidays between Jan. 31 and Feb. 6 as part of a plan coordinated by the United States to reduce global prices.
Saudi Energy Minister Prince Abdulaziz bin Salman said on Monday that it is the prerogative of the U.S. government whether to release supply from strategic petroleum reserves.
Festering geopolitical threats to supply are also supporting bullish sentiment, analysts said.
U.S. officials voiced fears on Friday that Russia was preparing to attack Ukraine if diplomacy failed. Russia, which has amassed 100,000 troops on Ukraine’s border, released pictures of its forces on the move.
Brent Crude Oil Trading at $84.53 a Barrel
The increase in Omicron variant cases has cast doubt on demand for crude oil in the near-term and trimmed gains recorded earlier in the week on Thursday during the Asian trading session.
The brent crude oil, against which Nigerian oil is priced, pulled back from $85.16 per barrel on Wednesday to $84.53 per barrel at 9:50 am Nigerian time on Thursday.
The uncertainty surrounding the highly contagious Omicron variant and its impact on fuel demand has shown by the U.S Energy Information Administration on Wednesday dragged on the global crude oil outlook.
The data released on Wednesday revealed that gasoline stockpiles rose by 8 million barrels last week, way higher than the 2.4 million barrel increase projected by experts. Suggesting that demand for the commodity is gradually waning in response to omicron.
“Gasoline demand was weaker-than-expected and still below pre-pandemic levels, and if this becomes a trend, oil won’t be able to continue to push higher,” OANDA analyst Edward Moya stated.
However, in a note to Investors King, Craig Erlam, a senior market analyst, UK & EMEA, OANDA, expected the impact of omicron to be short-lived. Libya’s inability to ramp up production after outage and OPEC plus continuous failure to meet production target are expected to support crude oil in the main term even with Kazakhstan expected to get back to pre-disruption levels in a few days.
“With omicron seen being less of a drag on growth and demand than feared. Combine this with short supply and there may be some room to run in the rally as restrictions are removed. Of course, Covid brings unpredictability and zero-covid policies of China and some others bring plenty of downside risk for prices,” he said.
Unrest in Kazakhstan and Libya Shoots up Oil Prices
The ongoing unrest in Kazakhstan and the supply outage in Libya have bolstered global oil prices on Thursday.
The deadly violence, across the tightly controlled former Soviet state, has been condemned by Russia, which sent paratroopers on Thursday into Kazakhstan to quell the unrest.
However, there were no indications that oil production in the country has been affected so far.
“The political situation in Kazakhstan is becoming increasingly tense.” German financial institution, Commerzbank said, “And this is a country that is currently producing 1.6 million barrels of oil per day.”
The Global benchmark Brent crude futures rose $1.78, or 2.2%, to $82.58 a barrel by 1445 GMT, the highest since late November. U.S. West Texas Intermediate (WTI) crude futures also gained $2.18, or 2.8%, to $80.03, the highest since mid-November.
However, Brent’s six-month backwardation stood at about $4 a barrel, its widest since late November.
Backwardation is a market structure where current prices trade at a premium to future prices. It is usually a sign of a bullish market.
In Libya, lack of maintenance and oilfields shutdowns has plunged the leading African oil producer’s output to 729,000 bpd.
According to Libya’s National Oil Corp on Thursday, production slumped from a high of more than 1.3 million bpd recorded in 2021.
The oil prices rallied despite a surge in United States fuel stocks last week.
The North American country’s crude oil stockpiles fell last week while gasoline inventories surged by more than 10 million barrels, the biggest weekly build since April 2020, as supplies backed up at refineries because of reduced fuel demand, Reuters noted.
OPEC+ on Tuesday agreed to further increase oil production by 400,000 bpd in February, as it has done each month since August.
Top oil exporter, Saudi Arabia however cut the official selling price for all grades of crude it sells to Asia in February by at least $1 a barrel.
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