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OPEC: ‘No Capacity to Replace Russia’s 7 Million Barrels of Oil Per Day’

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Mohammed Sanusi Barkindo, Secretary-General of the Organisation of Petroleum Exporting Countries (OPEC), has said that there is ‘no capacity to replace Russia’s 7 Million Barrels of Oil Per Day.’

Barkindo disclosed this to reporters during an energy industry conference held on Monday, 7th March in Houston. According to Barkindo, who has served as the organisation’s top executive since 2016, Russia exports 7% of the global oil supply, representing about 7 million barrels per day.

The secretary-general downplayed OPEC’s ability to increase oil production to override bans on Russian oil. Speaking at the event, Barkindo said: “We have no control over current events, geopolitics, and this is dictating the pace of the market.” 

Barkindo made his remarks at CERAWeek, a gathering of top global energy executives. This event was remarkably coming up only a day after U.S. President Joe Biden, officially banned Russian oil imports following Canada and Britain’s ban of the same course.

Many western countries and individuals alike have ramped up pressure on Russia with a number of sanctions and bans following the country’s invasion of Ukraine. However, these sanctions were never related to Russia’s import of oil until now.

Reports also indicate that the U.S. which had earlier severed diplomatic relations with Venezuela in 2019, is meeting up in discussions for the possibility of oil trade relations. In 2019, the U.S. placed a ban on Venezuela’s oil with sole dependency on Russia. However, this desperate moment has called for a revision of both country’s diplomatic ties.

Following the U.S. ban on Russia’s oil, a number of oil and gas companies have also exited trading ties with Russia with Shell PLC being the first major western oil and gas company to announce that it will no longer buy fuel products from Russia.

How Oil Prices May Affect Nigerians

The surge in oil prices undoubtedly comes with serious implications for both oil-producing and non-producing countries – even for a country like Nigeria, which sells crude oil and buys refined oil.

Over the years, the increase in oil prices to unprecedented amounts have shown that the Nigerian government will earn more in revenue from crude oil sales. However, with the country’s oil distribution cycle, the same money earned will be given to refineries around the world to buy refined petroleum products.

The implication of this is that the Nigerian government may now need to pay more in subsidies beyond the gauge that was received from revenue of selling crude. This will impact the potential share of revenue to all the state governments and adversely affect Nigerians in the long run.

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Crude Oil

Crude Oil Dips on Prolong Chinese Lockdown

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Global oil prices dipped slightly on Monday as economic reports revealed Chinese retail sales dropped 11% year-on-year in the month of April following the nation’s decision to extend the COVID-19 lockdown to about 46 cities.

Brent crude oil, against which Nigerian oil is priced, dropped to $108.96 per barrel on Monday before rebounding to $112.66 after reports showed Saudi Arabia’s crude oil export declined to 7.235 million barrels per day (mbpd) in the month of March. This represents a decline of 1% from 7.307 million bpd reported in February.

Also, crude oil prices were supported by reports that European Union could reach a deal to impose additional sanctions on Russia for invading Ukraine. According to European Union diplomats and officials, the new sanctions will target Russian crude oil.

However, at Investors King we are expecting the drop in Russia’s crude oil supply to be balanced out by the expected drop in Chinese crude oil imports due to the COVID-19 lockdown. Therefore, will expect oil prices to remain around the current level in the near term.

“With a planned ban by the EU on Russian oil and slow increase in OPEC output, oil prices are expected to stay close to the current levels near $110 a barrel,” said Naohiro Niimura, a partner at Market Risk Advisory.

It is important to note that despite Saudi Arabia’s crude oil exports dropping by 1%, crude oil production jumped to its highest level in about 24 months at 10.300 million bpd, up from 10.225 million bpd produced in the previous month.

Meanwhile, concerns over falling oil inventories in the United States bolstered gasoline futures to an all-time high on Monday.

“Oil prices will remain bullish, especially WTI’s near-term contract, as U.S. gasoline prices continued to rise amid weaker imports of petroleum products from Europe,” said Kazuhiko Saito, chief analyst at Fujitomi Securities.

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OPEC and Allies Raises Nigeria’s Crude Oil Quota by 1%

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The Organisation of Petroleum Exporting Countries (OPEC) and allies, together known as OPEC plus, have raised Nigeria’s crude oil quota by 1% or 19,000 barrels per day to 1.772 million barrels per day (mbpd) for the month of June.

This was disclosed in the OPEC plus report ‘June 2022 Required Production’ released on Thursday.

The increment was after the European Union announced it was working on new sanctions that will target Russian oil over its invasion of Ukraine. The union blamed Russia for a series of human abuse and the ongoing surge in global risk and economic uncertainty.

This, coupled with the extended COVID-19 lockdown restrictions in China, the world’s largest importer of crude oil, forced OPEC plus to increase Nigeria and others’ quotas.

With Nigeria’s Bonny Light crude trading at $110 a barrel, Nigeria’s daily oil revenue starting from June 2022 will be $194.92 million or N81.67 billion.

In a statement obtained by Investors King “Following the conclusion of the 28th OPEC and non-OPEC Ministerial Meeting, held via video conference on 5th May, it was noted that continuing oil market fundamentals and the consensus on the outlook pointed to a balanced market.

“It further noted the continuing effects of geopolitical factors and issues related to the ongoing pandemic. The OPEC and participating non-OPEC oil-producing countries, therefore, decided to reaffirm the decision of the 10th OPEC and non-OPEC Ministerial Meeting on 12th April 2020 and further endorsed in subsequent meetings, including the 19th OPEC and non-OPEC Ministerial Meeting on the 18th July 2021.”

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Oil Prices Extended Gains on New Russia Sanctions

Crude oil prices rose in the early hours of Wednesday on reports European Union is working on new sanctions against Russia oil

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Crude oil prices rose in the early hours of Wednesday during the Asian trading session on reports that the European Union is working on new sanctions against Russia for invading Ukraine.

The new sanctions will target Russia’s oil industry, according to Ursula von der Leyen, the President of the European Commission.

According to Josep Borrell, the head of the foreign policy unit at the EU’s executive European Commission, the European Union is working on its sixth sanctions to de-SWIFT more banks and list names of disinformation actors and tighten some loose ends regarding oil imports in the region.

“We are working on the sixth package of sanctions which aims to de-SWIFT more banks, list disinformation actors and tackle oil imports.”

Brent crude oil rebounded to $103.52 per barrel at 6:09 am Nigerian time on Wednesday, up from $103.03 a barrel it traded on Tuesday. The U.S West Texas Intermediate oil stood at $102.77 per barrel.

Crude oil dipped on Tuesday on concerns China’s COVID-19 lockdown could hurt demand for the commodity given China’s position as the world’s largest importer of crude oil. However, the European Union announcement and 3.5 million barrels declined in U.S. crude oil inventories in the week ended April 29 bolstered oil prices on Wednesday.

Still, the drop in the global manufacturing purchasing manager index for the first time since June 2022 in the month of April remained a concern.

Caroline Bain, the chief commodities economist at Capital Economics, explained that given rising inflation and interest rates, “the big picture is clearly negative for commodities demand.”

“While supply constraints may keep commodity prices elevated for some time yet, we think subdued demand will weigh on most prices later this year and in 2023,” Bain said.

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