Crude oil declined on Wednesday following reports that U.S. crude oil inventories grew more than expected in the week ended November 4.
Brent crude dipped $1.68, or 1.7%, to $93.68 a barrel by 5:00 pm Nigerian time while U.S. West Texas Intermediate (WTI) crude had fallen $1.64, or 1.8%, to $87.27 a barrel. The benchmarks fell around 3% on Tuesday.
U.S. crude oil inventories rose by about 5.6 million barrels for the week ended Nov. 4, according to market sources citing American Petroleum Institute figures, while seven analysts polled by Reuters estimated on average that crude inventories would rise by about 1.4 million barrels.
Last week, the market had latched onto hopes that China might be moving toward relaxing COVID-19 restrictions, but over the weekend health officials said they would stick to their “dynamic-clearing” approach to new infections.
COVID-19 cases in Guangzhou and other Chinese cities have surged, with millions of residents of the global manufacturing hub being required to have COVID-19 tests on Wednesday.
“With that (China reopening) narrative getting pushed back, coupled with a considerable build on U.S. inventory data, implying dimming U.S. demand, the recessionary crews are back out in full force this morning in Asia,” Stephen Innes, managing partner at SPI Asset Management, said in a note.
In another bearish sign, API data showed U.S. gasoline inventories rose by about 2.6 million barrels, against analysts’ forecasts for a drawdown of 1.1 million barrels.
The market will get a further view on demand in the world’s biggest economy with the release of official U.S. inventory data from the Energy Information Administration.
“If the large inventory build is confirmed by EIA today, it will be interesting to see if it generates a bigger reaction in the markets, with Brent now trading back in the middle of the $90-$100 range,” said Craig Erlam, senior markets analyst at OANDA.
Meanwhile, supply concerns remain.
The European Union will ban Russian crude imports by Dec. 5 and Russian oil products by Feb. 5, in retaliation for Russia’s invasion of Ukraine. Russia calls its actions in Ukraine a “special operation”.
Nine Oil Producing States Pocket N625bn in 2 Years
The federal government has revealed that Nine oil-producing states pocket N625.43 billion as 13 percent oil derivation, subsidy, and SURE-P refunds in just two years.
This was made known in a statement released on Friday by the Senior Special Assistant to the President on Media and Publicity, Garba Shehu.
According to the statement, the states that benefited from the refunds include Abia, Akwa-Ibom, Bayelsa, Cross River, Delta, Edo, Imo, Ondo, and Rivers States. Garba Shehu, however, added that the states still have about N1.1 billion as outstanding benefits due to them. He added that the refund has been accumulated since 1999.
Making reference to the comments made by the Governor of Rivers State, the Presidency noted that the Buhari-led regime will continue to render equal service to all the states regardless of affiliation, Investors King learnt.
Between October 2, 2021, and January 11, 2022, the presidential spokesman disclosed that the states were paid in eight instalments, while the ninth to 12th instalments are still outstanding.
Meanwhile, Garba recalled that data obtained from the Federation Account Department, Office of the Accountant General of the Federation, showed that a total of N477.2 billion was released to the nine states as a refund of the 13 percent derivation fund on withdrawal from Excess Crude Account (ECA), without deducting derivation from 2004 to 2019, leaving an outstanding balance of N287.04 billion.
“Abia State received N4.8 billion with an outstanding sum of N2.8 billion, Akwa-Ibom received N128 billion with an outstanding sum of N77 billion, Bayelsa with N92.2bn, leaving an outstanding of N55 billion”.
“Cross River got a refund N1.3 billion with a balance N792 million, Delta State received N110 billion, leaving a balance of N66.2 billion, Edo State received N11.3 billion, with a balance of N6.8 billion, Imo State, N5.5 billion, with an outstanding sum of N3.3 billion, Ondo State, N19.4 billion with an outstanding sum of N11.7bn while Rivers State was paid 103.6 billion, with an outstanding balance of N62.3 billion” the statement read.
According to the presidential spokesperson, states also got N64.8 billion as a refund of the 13 percent derivation fund on deductions made by Nigeria National Petroleum Company Limited without payment of derivation to Oil Producing states from 1999 to December.
Garba concluded that the president has approved the outstanding payment of N860.59 billion from the refunds which will soon be released to the benefiting states.
Oil Revenue into Foreign Reserve Dropped From $3bn Monthly in 2014 to Zero in 2022
The official foreign exchange receipt from crude oil sales into Nigeria’s official reserves has dried up steadily from above US$3.0 billion monthly in 2014 to an absolute zero dollar today, the Central Bank of Nigeria (CBN) governor, Godwin Emefiele disclosed.
Speaking at the 57th annual bankers’ dinner organized by the Chartered Institute of bankers of Nigeria (CIBN) in Lagos, the CBN governor noted that there has been a significant loss in foreign reserves due to the naira’s struggle and the rise in demand for forex.
He added that the sharp increase in the number of Nigerians who are seeking education in foreign countries particularly the UK has resulted in an unprecedented demand for foreign exchange.
According to him, the number of student visas issued to Nigerians by the UK alone has increased from an annual average of about 8,000 visas as of 2020 to nearly 66,000 in 2022.
Emefiele also lamented about the level of crude oil theft in Nigeria which has significantly affected the country’s oil production. He noted that crude oil theft has adversely impacted the Country’s foreign exchange reserves.
Investors King had earlier reported that Nigeria has lost its coveted position as Africa’s largest oil producer after oil production dropped below the mark of 1 million barrels per day.
Nigeria currently trails Angola, Libya and Algeria to the fourth position.
Meanwhile, on the Naira-4-Dollar scheme which the CBN introduced to boost migrant remittances into the Nigerian economy, the CBN governor noted that the scheme has largely been successful.
“I am happy to note that, so far, the Naira-for-Dollar scheme has been successful in increasing remittance inflows through our registered International Money Transfer Organisation (IMTOs),” he said.
Emefiele also noted that the introduction of the National Domestic Card Scheme (NDCS) will help to reduce the operating cost incurred by commercial banks while using foreign cards.
It could be recalled that the CBN earlier announced that it planned to introduce Nigeria-made transactional cards to replace well-known cards such as Visa and MasterCard.
Crude Oil Gained 2% as U.S. Oil Inventories Dipped Last Week
Crude oil appreciated on Tuesday on signs global supply is declining amid better-than-expected optimism on Chinese economic recovery and a weaker dollar.
But the likelihood that OPEC+ will leave output unchanged at its upcoming meeting limited the gains.
Brent crude futures rose $2.06, or 2.48% to $85.09 per barrel by 1044 GMT. The more active February Brent crude contract rose by 2.02% to $85.95.
U.S. West Texas Intermediate (WTI) crude futures climbed $1.69, or 2.16%, to $79.89.
Support followed expectations of tighter crude supply.
U.S. crude oil stocks dropped by 7.9 million barrels in the week ended Nov. 25, according to market sources citing American Petroleum Institute figures on Tuesday.
Official figures are due from the U.S Energy Information Administration on Wednesday.
And the International Energy Agency expects Russian crude production to be curtailed by some 2 million barrels of oil per day by the end of the first quarter next year, its chief Fatih Birol told Reuters on Tuesday.
On the demand side, further support came from optimism over a demand recovery in China, the world’s largest crude buyer.
China reported fewer COVID-19 infections than on Tuesday, while the market speculated that weekend protests could prompt an easing in travel restrictions.
Guangzhou, a southern city, relaxed COVID prevention rules in several districts on Wednesday.
A fall in the U.S. dollar was also bearish for prices. A weaker greenback makes dollar-denominated oil contracts cheaper for holders of other currencies, and boosts demand.
Fed Chair Jerome Powell is scheduled to speak about the economy and labour market on Wednesday, with investors looking for clues about when the Fed will slow the pace of its aggressive interest rate hikes.
Capping gains, the OPEC+ decision to hold its Dec. 4 meeting virtually signals little likelihood of a policy change, a source with direct knowledge of the matter told Reuters on Wednesday.
“Market fundamentals favour another cut, especially given the uncertainty over China’s COVID situation … Failure to do so risks sparking another selling frenzy,” said Stephen Brennock of oil broker PVM.
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