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Trouble For Nigeria As Oil Price Falls Below $90 Per Barrel

Global oil prices dropped below $90 a barrel on Wednesday as global economic uncertainty continues to weigh on the demand for the commodity

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Global oil prices dropped below $90 a barrel on Wednesday as global economic uncertainty continues to weigh on the demand for the commodity.

Brent crude oil, against which Nigerian oil is priced, declined by $4.83 to $88 a barrel, falling below $90 a barrel for the first since Feb. 8, 2022. While, the U.S. West Texas Intermediate crude oil shed $4.94, or 5.7%, to $81.94 per barrel, its lowest since January 2022

Crude oil had traded at a high of $124.76 on the 7th of March, 2022. 

This recent fall could be credited to the growing fear of economic recession and another potential interest rate increment by the Federal Reserve which has strengthened the value of the American dollar.

Analysts believe that the slowing demand for the commodity in Europe, the cut in production by the Organisation of the Petroleum Exporting Countries (OPEC), coupled with interest rate hikes by central banks are some of the major factors influencing the fall in oil prices.

It is believed that a stronger dollar will reduce demand for the commodity as it would be expensive for holders of foreign currencies given crude oil is sold in the U.S. Dollar.

After Russian President Vladimir Putin invaded Ukraine, Europe has since aggressively cut reliance on Russian oil and focused on alternatives source of energy like solar, etc.

“The oil market is a bloodbath” as crude prices take a major hit from “sharply weakening” global demand, describes Edward Moya, senior market analyst at Oanda also said.

In China, crude oil imports also dropped by 9.4% in August compared to the same month in 2021.

It is believed that Nigeria will be one of the most affected economies. The country is known to heavily finance its fiscal budget with proceeds from oil. In the 2023 budget, Nigeria had projected total revenue of N8.46 trillion out of which N1.9 trillion is expected from oil-related sources, representing almost 20 percent.

Investors King had reported that Nigeria is confronted with a serious challenge of oil theft losing $3.5 billion in 2021. 

The country lost 90,000 barrels per day to theft in August, or roughly 2.8 million barrels in the month, making last month’s production of 1.43 million BPD one of the lowest in five years.

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Crude Oil

Nembe Creek Oil Field Halted After Leak, Impacting 150,000 bpd

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Nigeria’s oil output has taken a significant hit following the shutdown of the Nembe Creek oil field due to a major oil leak.

The Nembe Creek oil field, responsible for producing approximately 150,000 barrels of crude oil per day (bpd), was forced to cease operations on June 17, 2024.

The leak occurred on the Nembe Creek Trunk Line (NCTL), a critical pipeline that transports oil from the Nembe Creek oil field to the Bonny Oil Export Terminal.

The operator of the pipeline, Aiteo Eastern Exploration and Production Company, confirmed the leak and the subsequent shutdown in a statement released yesterday.

Aiteo reported that the leak was discovered during routine operations in the Nembe area of Bayelsa State, located in Nigeria’s oil-rich Delta region.

This region is notorious for environmental degradation due to decades of oil spills, which have severely impacted local agriculture and fishing industries.

Following the discovery of the leak, Aiteo activated its Oil Spill and Emergency Response Team and shut down all production from Oil Mining Lease (OML) 29 as a precautionary measure to prevent further environmental damage.

“While we regret the production losses and the potential environmental impact, our current priority is to expedite an efficient spill management process in line with regulatory standards and collaborate with all stakeholders to restore production and mitigate associated risks,” said Victor Okronkwo, Managing Director of Aiteo Eastern E&P.

The exact cause of the leak remains unknown. Aiteo emphasized that the shutdown was a precautionary step to contain the spill and minimize environmental harm.

The company has notified its joint venture partners and relevant regulatory bodies, including the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the National Oil Spill Detection and Response Agency (NOSDRA), about the incident.

This development comes as a setback for Nigeria, which holds Africa’s largest natural gas reserves and is a major oil producer.

The country’s oil sector has faced numerous challenges, including aging infrastructure, theft, and environmental issues, which have hindered its ability to maximize production and exports.

The Nembe Creek shutdown also highlights ongoing concerns about the safety and reliability of Nigeria’s oil infrastructure. The NCTL has been a frequent target of oil theft and sabotage, exacerbating the challenges of maintaining a steady oil output.

Energy analysts believe that the latest incident could impact Nigeria’s ability to meet its export commitments and exacerbate the country’s economic challenges.

The Nigerian government, under President Bola Tinubu, has been making efforts to attract investment into the energy sector to boost production and address infrastructure deficits.

“The government will hope this offers confidence not only in the quality of the Nigerian resource base, but also in the government’s pledge to improve ease of doing business,” said Clementine Wallop, director of sub-Saharan Africa at political risk consultancy Horizon Engage.

As Nigeria works to address the immediate spill and restore production, the broader implications for the country’s oil sector and its environmental impact remain to be seen.

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Brent Crude Nears Seven-Week Highs as Market Eyes US Inventory Report

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Brent oil, the international benchmark for Nigerian crude oil, remained steady on Thursday, hovering just below seven-week highs as the escalating conflict in the Middle East raised concerns over potential supply disruptions.

At the same time, the market eagerly awaits U.S. inventory data for further indications of demand trends.

August Brent crude rose 28 cents, or 0.3%, to $85.35 a barrel while the U.S West Texas Intermediate (WTI) oil gained 13 cents, or 0.2%, to $81.70 a barrel.

“There was no WTI settlement on Wednesday due to a U.S. public holiday, which kept trading subdued,” noted Ricardo Evangelista, an analyst at ActivTrades.

“However, oil prices are likely to remain supported around current levels due to a growing geopolitical risk premium driven by conflict in the Middle East.”

Israeli forces have intensified their operations in the Gaza Strip, targeting areas in the central region overnight while tanks advanced into Rafah in the south.

The escalating violence has heightened fears of a broader conflict that could impact oil supplies from the region.

“Expectations of an inventory build appear to be overshadowing fears of escalating geopolitical stress for now,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

Investors are keenly awaiting the release of U.S. inventory data from the Energy Information Administration (EIA) later on Thursday, delayed by a day due to the Juneteenth holiday.

An industry report released on Tuesday by the American Petroleum Institute (API) indicated that U.S. crude stocks rose by 2.264 million barrels in the week ending June 14, while gasoline inventories fell, according to market sources.

The summer season typically sees an uptick in oil demand due to increased refinery runs and weather-related risks.

“Ongoing production cuts by the OPEC+ group, combined with seasonal demand, should tighten oil balances and lead to inventory draws during the summer months,” J.P. Morgan commodities analysts wrote.

Refining margins have also improved, with the ICE gasoil futures premium to Brent crude jumping to $20.63 a barrel on Wednesday, a two-month high.

“Firmer fuel refining margins provide a healthy dose of encouragement for those expecting improvements on the demand side,” commented Tamas Varga, an analyst at PVM.

In other economic news, the Bank of England’s decision to keep its main interest rate unchanged at a 16-year high of 5.25% ahead of the national election on July 4 has been noted by market observers.

Higher interest rates generally increase the cost of borrowing, which can slow economic activity and dampen oil demand.

As the market braces for the upcoming EIA inventory report, analysts and traders are closely watching for any signals that could influence oil prices in the near term.

The delicate balance between geopolitical tensions and supply-demand fundamentals continues to play a critical role in shaping the oil market landscape.

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Aradel Holdings Reports 36% Increase in Crude Oil Production in Q1 2024

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Aradel Holdings Plc, a prominent player in Nigeria’s energy sector, has announced a significant upswing in its crude oil production, a notable milestone in its operational performance for the first quarter of 2024.

During their 29th Annual General Meeting held in Lagos, Aradel Holdings unveiled that their crude oil production surged by 36% to 13,250 barrels per day compared to the average figures recorded in the previous fiscal year.

This increase underscores the company’s strategic efforts to enhance its production capabilities and optimize operational efficiencies.

Accompanying this impressive growth in crude oil output, Aradel Holdings also reported a substantial rise in gas production, reaching 36.8 million standard cubic feet per day, which reflects a parallel 36% increase from the previous year’s averages.

Despite a slight decrease of 1.6% in refined petroleum products, the overall operational metrics for the first quarter of 2024 showcased robust performance across key production segments.

Chairman of Aradel Holdings, Ladi Jadesimi, emphasized the pivotal role of strategic initiatives implemented in preceding years, which contributed to the company’s exceptional growth trajectory.

“We are pleased with the strides made in Q1 2024, driven by enhanced production volumes and improved operational efficiencies,” stated Jadesimi during the AGM.

He highlighted the successful implementation of the Alternative Crude Evacuation system introduced in 2022, which significantly minimized crude losses and bolstered overall production stability.

In financial terms, Aradel Holdings reported a remarkable 90% increase in revenues for Q1 2024 compared to the same period last year, signaling strong market demand and effective resource utilization strategies.

Moreover, the company achieved a commendable 62% growth in Profit Before Tax (PBT), reinforcing its position as a leading player in Nigeria’s energy landscape.

Commenting on the company’s outlook, CEO and Managing Director Adegbite Falade expressed optimism about Aradel Holdings’ future prospects.

“Our performance in Q1 2024 underscores our commitment to sustained growth and operational excellence,” Falade remarked. “We remain focused on leveraging our strategic advantages and advancing our capabilities to meet evolving market dynamics.”

Aradel Holdings’ stellar performance in Q1 2024 also propelled the company’s market capitalization to exceed N1 trillion, a significant milestone in its corporate history.

This achievement underscores investor confidence and reflects Aradel Holdings’ robust position in the Nigerian stock market.

Looking ahead, Aradel Holdings aims to build upon its Q1 success by further enhancing production capacities, exploring new growth opportunities, and maintaining a steadfast commitment to operational efficiency and sustainability.

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