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Brent Crude Oil Extends Decline to $94, Nigeria Revenue to Drop

The global economy took another hit on Wednesday after U.S data revealed that inflation rose to 9.1% in the world’s largest economy in the month of June.

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The global economy took another hit on Wednesday after U.S data revealed that inflation rose to 9.1% in the world’s largest economy in the month of June.

The increase in U.S. Consumer Price Index, which measures the inflation rate in an economy, pointed to an additional interest rate increase if the Federal Reserve would at least slow down the pace of increase and ease the extent of the widely projected recession.

The over 40-year high inflation rate plunged global financial assets and bolstered the U.S. Dollar gain to more than a two-decade high. This, I expect to further drag on oversea orders and the manufacturing sector in general as U.S goods become more expensive to foreign currency holders.

Brent crude oil, the international benchmark for Nigerian oil, has declined by $11.91 from $106.37 a barrel it traded on Tuesday to $94.46 on Thursday before paring losses to $96.27 as of 4:30 pm Nigerian time.

Oil traders and investors have started factoring in slow down in demand due to stronger U.S. Dollar, rising number of COVID-19 victims in China and higher borrowing cost (interest rate increase) expected to hurt new investments in the energy sector.

“Clearly, focus is now on the demand side of the oil equation. Yesterday’s weekly EIA (U.S. Energy Information Administration) report showed sizeable builds in product inventories,” Tamas Varga, analyst at PVM Oil Associates, said.

“Collateral damage of growing fears of inflation is the strong dollar, which is also bearish for oil prices. Interestingly, physical markets are still strong but the change in sentiment of financial investors is currently the dominant driving force.”

Oil dependent economies like Nigeria, Angola, etc will experience drop in revenue while Nigeria, Africa’s largest producer of the commodity, will also struggle with fiscal space as projected by the World Bank.

“When we launched our previous Nigeria Development Update in November 2021, we estimated that Nigeria could stand to lose more than 3 trillion Naira in revenues in 2022 because the proceeds from crude oil sales, instead of going to the federation account, would be used to cover the rising cost of gasoline subsidies that mostly benefit the rich. Sadly, that projection turned out to be optimistic,” stated Shubham Chaudhuri, World Bank Country Director for Nigeria.

However, with crude oil now trading at a three month low, Nigeria’s foreign revenue generation will drop and drag along infrastructure development.

“Due to the petrol subsidy and low oil production, Nigeria faces a potential fiscal timebomb,” the World Bank declared.

The U.S. Federal Reserve is expected to raise interest rates by anothe 100 basis points later this month to rein in inflation rate. The next meeting is schedule to hold on July 26-27.

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

NNPC Limited Discovered 395 Illegal Refineries

The Nigerian National Petroleum Company Limited (NNPCL) has discovered 395 illegal oil refineries among other illegal assets.

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Oil Declines Below 60USD A Barrel

The Nigerian National Petroleum Company Limited (NNPCL) has discovered 395 illegal oil refineries among other illegal assets.

At the Senate briefing in Abuja on Tuesday, the Chairman of NNPCL discloses that the company has discovered and shut down 395 illegal oil refineries. He also noted that 273 wood boats were taken down while 374 illegal oil reservoirs were destroyed. 

Mele Kyari noted that serious actions are being undertaken to curtail oil theft in the Niger Delta region.

“We have deactivated 395 illegal refineries; we have taken down 273 wooden boats, we have destroyed 374 illegal reservoirs, we destroyed 1,561 metal tanks.” Mele Kyari said.

He added, “We have seized over 49 trucks and burnt them down; we have discovered illegal oil pits of 898 so far, and, 219 cooking sites have been taken down.”

Addressing the senate committee, Mele Kyari noted a criminal enterprise of such magnitude can cripple the oil revenue. 

The NNPC chairman also disclosed that they had caught wind of an illegal connection of four kilometres route into the sea running from its major Forcados line, which he estimates has been around for 9 years.

Investors King had earlier reported in September that for the first time in five years, Nigeria lost its crown as Africa’s largest oil producer to Angola.

According to the Managing Director and Country Chair for Shell, Mr Osagie Okunbor, oil theft was one of the reasons why Nigeria could not meet its OPEC quota of 1.8 million barrels a day.

Similarly, the head of the Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe said in a statement that about 141 million barrels of oil were produced in the first quarter of 2022, but only about 132 million barrels of oil were received at export terminals. 

Meanwhile, Kyari has proposed capital punishment for oil thieves and pipeline vandals. He noted that oil thieves are the country’s enemy and they should be treated as such. 

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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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Crude Oil

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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