By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
Stock markets are recovering slightly on Wednesday after another volatile start to the week.
It’s clear this week that investors have one eye on the US, with Fed minutes this evening, US inflation data tomorrow and the start of earnings season likely to be the primary drivers into Friday’s close.
Any hope of a helping hand from the Fed minutes may not be forthcoming, with the commentary to an extent outdated at this point and policymakers seemingly unified in their goal of defeating inflation. Even a good CPI number tomorrow may do little to change that in the near-term.
Sterling jumps on BoE reports
The FT has reported that the BoE could extend its emergency bond-buying measures beyond Friday in order to ensure continued stability in the market which has lifted the pound in early trade. While Governor Bailey’s warnings to pension funds this week gave the impression there’s no turning back, it would appear that isn’t entirely true.
And that shouldn’t be as surprising as it seemingly is. While the hope within the central bank will be that its emergency measures have allowed pension funds to recalibrate and address the vulnerability in the bond market, if that doesn’t prove to be the case it would be ridiculous to pull the rug from under it rather than extend the measures until the end of the month when we get the full budget.
Still, at a time when investors are living in fear of what’s around the corner, perhaps the mindset of “prepare for the worst and hope for the best” is behind it. It does go to show how huge the Chancellor’s budget is in three weeks and the carnage that another misstep could cause. The BoE can buy the government time for now but it isn’t a permanent solution.
UK may already be in recession after GDP miss
The rebound in sterling held even as we received some pretty bleak GDP data for August that suggests the UK may already be in recession. I mean, most people already agree that the country is in recession but we’re just waiting for the data to technically confirm it. The numbers weren’t good though, with a 1.6% manufacturing slump driving a 1.8% decline in production. Meanwhile, consumer-facing services fell sharply by 1.8%, with overall services dropping by 0.1%.
All in all, the numbers are pretty grim and I don’t see much scope for improvement in the near future, particularly on the consumer side. Perhaps the minor reaction is a reflection of the fact that most already believe the economy to be in recession and the data just confirms that, despite falling short of analyst expectations.
BoK end game in sight
The Bank of Korea hiked interest rates by 50 basis points overnight, taking the Base Rate to 3% and not far below what it believes to be the terminal rate of around 3.5%. The move was widely expected, with the central bank still concerned about external conditions and a weaker won. Time will tell whether the central bank will indeed start to ease off the brake but today’s comments suggest that, much like the RBA, the end game is now in sight.
Edging higher but growth concerns remain
Oil prices are nudging higher after paring recent gains so far this week. There are two dominant forces in the oil market at the moment; the economic outlook being the primary downside risk and OPEC+ the upside. The latter reasserted itself last week with the two million barrel per day cut (much less in reality, of course) but growth fears are still dominating in the markets which may stop the price from taking off. We could also see further coordinated action from consuming countries on the SPR after a frustrated response – to put it mildly – to the alliance’s output cut.
Paring losses but optimism running thin
Gold is edging higher amid a slight softening in the dollar and marginally lower yields. I’m not sure anyone is getting too excited by today’s rebound but coming after a week of declines, we may just be seeing some profit-taking ahead of the Fed minutes and inflation data. They will be the core focus for gold traders over the next 36 hours and given the response in the markets over the last week, they don’t appear overly optimistic.
Remains in consolidation
Bitcoin is seeing small gains on Wednesday, with the cryptocurrency up less than 1% and still holding above $19,000. While the overall trend in recent days has been lower, the moves have been relatively mild and look more consolidatory than anything more worrying. The longer trend of consolidation around $20,000 remains intact which is the most important thing. Whether that will be the case at the end of the week, much like elsewhere, will depend on the Fed minutes and inflation data.
Nigeria’s Struggles in the Energy Sector Highlighted as Ghana Nears Universal Access
Nigeria, the most populous nation in Africa, continues to grapple with challenges in its electricity sector, resulting in a significant lag behind its West African neighbor, Ghana, in achieving universal access to electricity.
Ghana, with its population of 34 million, has made remarkable strides in expanding its power sector, attaining an impressive electrification rate of 88.54% with ambitions to reach 100% by 2024.
Ghana’s success story is characterized by its deliberate policy formulation and swift implementation to bolster its power sector, facilitating increased investment and widespread electricity access for its citizens.
Speaking at the Nigeria Energy Conference and Exhibition 2023 in Lagos, Ghana’s Minister of Energy, Andrew Mercer, underscored his country’s commitment to achieving universal access to electricity by the end of 2024.
Mercer stated, “The president of Ghana emphasized the aggressive target of the government to achieve universal access by the end of 2024 from the current rate of 88.54%. This is consistent with the UN Sustainable Development Goal 7 (SDG7), which aims to ensure access to affordable, reliable, and modern energy for all by 2030.”
In Ghana, the total installed energy capacity stands at 5,454 megawatts (MW) with dependable capacity at 4,843 MW, and peak demand reached 3,561 MW in May 2023.
Meanwhile, Nigeria boasts a significantly higher total installed generation capacity of 13,000 MW but only a fraction, between 3,500 and 4,500 MW, is effectively transmitted and distributed to Nigerian homes and businesses.
Tragically, this disparity means that over 80% of Nigerians still lack access to the electricity grid with only around 11.27 million Nigerians recorded as electricity customers as of Q1 2023, according to the National Bureau of Statistics (NBS).
Ghana’s sustained electricity grid stability has resulted from consistent efforts by the government and stakeholders to enhance the nation’s electricity industry, ultimately improving the quality of life for Ghanaians and supporting economic activities.
Both Ghana and Nigeria have increased their reliance on thermal power generation, reducing the share of hydro power generation in favor of thermal sources. However, while Ghana boasts a record of grid stability and minimal outages, Nigeria has struggled with frequent grid collapses.
In September 2023, Nigeria experienced grid collapses on two occasions, disrupting power supply nationwide.
This disparity in grid reliability highlights the challenges faced by Nigeria’s electricity sector. According to data from the Nigerian Electricity Regulatory Commission (NERC), Nigeria recorded a high number of grid collapses in recent years, with 2018, 2019, 2020, and 2021 witnessing 13, 11, 4, and 4 collapses, respectively.
In 2022, there were seven recorded grid collapses, with the most recent occurring on September 25, 2022, when power generation plummeted from over 3,700 MW to as low as 38 MW.
As Nigeria grapples with these electricity challenges, Ghana’s steady progress in its power sector serves as a reminder of the critical importance of comprehensive policies, infrastructure development, and stability in ensuring universal access to electricity for citizens, a goal that remains elusive for millions of Nigerians.
Nigerian Pump Prices May Increase as Crude Oil Hits $93.55 Per Barrel
Amidst growing concerns over the surging price of crude oil on the international market, Nigerian citizens are bracing themselves for a possible increase in pump prices.
Crude oil, the lifeblood of Nigeria’s economy rose to $92.42 per barrel on Monday, casting a shadow of uncertainty over the already volatile fuel market.
This surge in crude oil prices comes in tandem with the persistent depreciation of the Naira in foreign exchange markets, where it traded at N980 to $1 on the parallel market. For many Nigerians, these simultaneous developments trigger memories of the recent fuel price hikes that followed the removal of fuel subsidies earlier this year.
In June, the government removed the subsidy, leading to a sharp 210% increase in the pump price from N175 per liter to N546.83 per liter. In a further blow to consumers, less than a month later, the price surged again, reaching N617 per liter.
However, since then, there have been no additional fuel increments, despite fluctuations in the Naira’s exchange rate. President Bola Ahmed Tinubu, along with key government officials and industry leaders, has reiterated their commitment to stabilizing petrol prices in the country.
According to Ajuri Ngelale, Special Adviser to the President on Media and Publicity, “The President affirms that there will be no increase in the price of petroleum motor spirit.”
Mele Kyari, Group Chief Executive of the Nigerian National Petroleum Corporation Limited (NNPC), echoed this sentiment, emphasizing that NNPC is the sole supplier of petrol nationwide and has not proposed any price hikes.
Industry experts like Chinedu Okonkwo, President of the Independent Marketers Association of Nigeria (IPMAN), have urged the government to expedite efforts in implementing Compressed Natural Gas (CNG) as a viable alternative to traditional fuels, providing a long-term solution to the country’s energy needs.
While the global crude oil price surge is a cause for concern, Nigerians are holding onto the government’s commitment to price stability and the potential for CNG to provide a sustainable energy alternative in the future.
In a market with unique dynamics, where NNPC remains the sole supplier and importer of fuel, the hope is that prices will remain stable for the benefit of all Nigerians.
Nigeria’s Oil Output Plummets to Record Low as Production Sharing Contracts Struggle
Nigeria’s oil output from Production Sharing Contracts (PSCs) with partnering firms has reached a historic low of 34 percent over the past year, according to a comprehensive review of the latest Oil and Gas Report released by the Nigeria Extractive Industries Transparency Initiative (NEI TI).
This dramatic decline underscores the nation’s persistent challenge of meeting its crude oil export commitments, despite its status as Africa’s largest oil producer with abundant crude reserves.
The NEITI report, covering the year 2021, paints a grim picture of the state of PSCs in Nigeria. Out of the 35 PSC blocks, only 12 recorded any production, while a staggering 23 blocks, representing 66 percent of the total, remained entirely dormant.
The Nigerian National Petroleum Company Limited (NNPC), representing the federation, participates in these PSCs, where partnering oil companies finance operations in exchange for future benefits, such as Petroleum Profit Tax (PPT), royalties, and other bonuses.
NEITI’s report reveals that production from these PSCs has dwindled significantly. “In 2021, only 12 (34 percent) of the PSC blocks recorded production, while 23 other blocks, representing 66 percent of the total number of PSC blocks, did not produce,” the report stated.
This production amounted to 242.96 million barrels, a mere 42.92 percent of the nation’s total oil production for the year.
Despite ongoing efforts to boost production, Nigeria has been unable to raise its oil exports for over three years, consistently falling short of its required OPEC quota by at least 560,000 barrels per day.
This shortfall severely hampers the country’s ability to generate much-needed foreign exchange.
NEITI has issued a crucial recommendation in response to this crisis. It calls on the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and NNPC to urgently review the technical and operational constraints hampering production from idle PSC blocks, with the goal of optimizing these arrangements.
In cases where issues cannot be resolved, NEITI suggests considering license revocation and allocation to other interested parties.
Also, the NEITI report highlights losses in the oil sector due to theft and sabotage. In 2021, a total of 29 companies suffered crude oil losses amounting to 37.57 million barrels. The theft and sabotage were primarily concentrated in three terminals: Bonny, Forcados, and Brass, with Bonny experiencing the highest volume of theft at 28.91 million barrels.
Cumulatively, this resulted in a substantial loss of 19 percent of production delivered into these terminals.
The report also notes that companies reported deferred crude production of 70.09 million barrels in 2021, attributing it mainly to repairs and maintenance.
Concerns regarding transparency and accountability are raised as the report reveals discrepancies in revenue records. While $194.85 million and N9.73 billion were earned from pipeline transportation revenue during the period, NEITI highlights that the naira receipt had yet to be remitted at the time of the report, and there was inadequate disclosure of tariff rates and volumes.
Similarly, $702.19 million and N343.56 million in miscellaneous revenue from Joint Venture (JV) operations raised questions, as the naira receipt remained unremitted to the federation. NEITI urges NNPC and partnering companies to promptly provide a basis for revenue computation and ensure that all due revenues are remitted as soon as received.
The report concludes by emphasizing the need for improved data management processes and controls to prevent future discrepancies, highlighting the importance of regular monitoring, data reconciliation, and cross-verification to maintain data integrity.
As Nigeria grapples with these critical issues in its oil sector, the report serves as a stark reminder of the challenges facing one of Africa’s largest oil-producing nations.
Urgent action and reforms are required to address the declining production, losses, and revenue discrepancies in Nigeria’s oil industry.
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