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Brent Crude Drops to $101.31 on Rising COVID-19 in China

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The international benchmark for crude oil, Brent crude declined from about $109 a barrel it closed on Friday to $101.31 on Monday during the London trading session as concerns over rising cases of COVID-19 in China weighed on the outlook of the commodity.

Crude oil daily chart

Chinese government was said to have started constructing fences around buildings that accommodated COVID-19 victims to curb the further spread of the virus. However, investors are concerned the measures may not be enough given a series of lockdown restrictions put in place in different cities. Businesses and investors have started predicting a total lockdown that could plunge the world back to the 2020 experience and slow down the global economy.

“Today, China fears are adding to the downside momentum for Asian markets. China has tightened parts of the Shanghai lockdown, including erecting fences around apartment buildings with Covid-19 infected individuals. Meanwhile, residents of the Chaoyang district of Beijing will have to submit to three days of testing to get on top of the omicron outbreak there, with parts of it “sealed” or “controlled,” to paraphrase Bloomberg’s story this morning. Although some parts of China have been under restrictions longer than Shanghai, omicron’s arrival in Beijing would be an ominous development,” Jeffrey Halley, a Senior Market Analyst, Asia Pacific with OANDA stated in an email forwarded to Investors King.

While, the size of the COVID-19 cases is unknown,  continuous restrictions in the world’s largest importer of the commodity and the resumption of crude oil production in Libya‘s closed oil fields could cap oil price increase, even with the sanctions imposed on over 7 million barrels per day of Russian oil import.

Meanwhile, global stock markets extended their declines during the London trading session on Monday on the back of the U.S. Federal Reserve’s projected rates increase. Stoxx 600 Europe index lost more than 2% while S&P 500 dipped by 1%. The cryptocurrency space plunged further.

Bonds and the U.S. Dollar jumped ahead of Federal Reserve action.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Crude Oil: Nigerian Government Set to Reopen 180,000bpd Trans Niger Pipeline

The Federal Government is set to re-open the Trans Niger Pipeline which has a production capacity of 180,000 barrels of crude oil per day. 

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Six months after the Trans Niger Pipeline (TNP) was shut down due to vandalism and oil theft, the Federal Government is set to re-open the pipeline which has a production capacity of 180,000 barrels of crude oil per day. 

Investors King learnt that Trans Niger Pipeline (TNP) serves as part of Nigeria’s gas liquids evacuation infrastructure, which is vital for domestic power generation and the export of liquefied gas.

According to a statement released by the General Manager of National Petroleum Investment Management Services (NAPIMS), Mr Bala Bunti on his official Twitter handle, the Trans Niger Pipeline will enhance Nigeria’s oil production capacity. 

The General Manager noted that NAPIMS has been in talks with the host communities along the pipeline to bolster security for the crucial oil infrastructure. 

“The NAPIMS leadership delegation under the  General Manager of Joint Venture operations, Engr Zakariya Budawara, had spent the last one week with the Bodo community in Gokana LGA of Rivers State where the pipeline is situated and runs through”. He said. 

Bunti further stated that the people of Bodo have pledged their commitment to ensure the security of the oil infrastructure in exchange for improved quality of life, job creation and capacity building. 

It will be recalled that the Trans Niger Pipeline was shut down by Shell Petroleum Development Company because of vandalization and oil theft. It has been moribund ever since because no crude has flown through it.

Investors King had earlier reported that Nigeria’s oil production has been characterised by theft, vandalism and sabotage which has led to a massive drop in production. 

Some major oil companies had announced a cease of operation because of vandalism and insecurity. 

In July 2022, the Managing Director and Country Chair for Shell Petroleum Development Company of Nigeria Limited, Osagie Okunbor said oil theft was one of the reasons that Nigeria could not meet its OPEC quota of 1.8 million barrels a day.

Similarly, in August 2022, for the first time in five years, Nigeria lost its crown as Africa’s largest oil producer to Angola.

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Fear of Global Recession Weighs on Crude Oil Prices

Global uncertainty concerning recession continued to dictate the price of crude oil and other global commodities

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Global uncertainty concerning recession continued to dictate the price of commodities, especially crude oil which has now declined for a second trading session on Monday.

Brent crude oil, against which Nigerian oil is priced, slipped by $1, or 1.2%, to $85.15 a barrel at 11:36 a.m Nigerian time on Tuesday. Brent crude dipped as low as $84.51, the lowest since Jan. 14.

U.S. West Texas Intermediate (WTI) crude shed 87 cents, or 1.1%, to $77.87 a barrel. WTI dropped as low as $77.21, the lowest since Jan. 6.

Brent and WTI slumped by about 5% on Friday.

The dollar index that measures the greenback against a basket of major currencies climbed to a 20-year high on Monday.

A stronger dollar tends to curtail demand for dollar-denominated oil.

Meanwhile, interest rate increases imposed by central banks in numerous oil-consuming countries to fight surging inflation has raised fears of an economic slowdown and accompanying slump in oil demand.

“A backdrop of global monetary policy tightening by the key central banks to quell elevated inflation, and a splendid run-up in the greenback towards more than two-decade highs, has raised concerns about an economic slowdown and is acting as a key headwind for crude prices,” said Sugandha Sachdeva at Religare Broking.

Disruptions in the oil market from the Russia-Ukraine war, with European Union sanctions banning Russian crude set to start in December, has lent some support to prices.

Attention is turning to what the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, together known as OPEC+, will do when they meet on Oct. 5, having agreed at their previous meeting to cut output modestly.

However, OPEC+ is producing well below its targeted output, meaning that a further cut may not have much impact on supply.

Data last week showed OPEC+ missed its target by 3.58 million barrels per day in August, a bigger shortfall than in July.

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Crude Oil Pulls Back to $91 a Barrel on Monday

Despite the strong U.S. dollar and slowing demand for crude oil, the price of the commodity pulled back on Monday during the New York trading session.

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Despite the strong U.S. dollar and slowing demand for crude oil, the price of the commodity pulled back on Monday during the New York trading session.

Brent crude oil, against which Nigerian oil is priced, pulled back from $88 a barrel to $91.52 at 5:31 pm Nigerian time. While the U.S. West Texas Intermediate oil pared losses to $84.75 a barrel, up from $81.65 it traded in the early hours of the day.

The price of the commodity traded lower in the early hours of the day on concerns that central banks will raise interest rates to curb inflationary pressures, a move expected to further hurt demand for crude oil and support the U.S. Dollar’s attractiveness to foreign investors.

“Ideas that continued rate increases will slow world crude demand and keep upward pressure on the U.S. Dollar is triggering long liquidation in both crude and natural gas this morning,” said Dennis Kissler, senior vice president of trading at BOK Financial.

While the pullback may not last given a series of factors impacting the outlook of the commodity, supply remained tight and will continue to dictate prices for the remaining part of the year, especially with the Organization of Petroleum Exporting Countries and allies led by Russia, known as OPEC+ still struggling to up production.

The cartel fell short in August, missing its target by 3.583 million barrels per day (mbpd) following a 2.892 mbpd missed in July.

“The market still has the start of European sanctions on Russian oil hanging over it. As supply is disrupted in early December, the market is unlikely to see any quick response from U.S. producers,” ANZ analysts said.

However, the gradual easing of COVID-19 restrictions in China, the largest importer of the commodity, may help bolster prices.

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