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Oil Economy Still in Need of a Leg-up – Coronation Merchant

The oil economy declined by -11.8% y/y in Q2 ’22 compared with 6.6% y/y recorded in Q1 ’22

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Crude oil - Investors King

According to data from the National Bureau of Statistics, the oil economy declined by -11.8% y/y in Q2 ’22 compared with 6.6% y/y recorded in Q1 ’22. This decline can be largely attributed to production cuts on the back of oil theft and infrastructural deficits.

Turning to contribution to GDP, the oil sector accounted for 6.3% to the GDP compared with 6.6% recorded in the  previous quarter. Meanwhile, the non-oil sector contributed 93.7% highlighting the sector as the major driver of the economy.

In February, oil prices exceeded USD100/b after Russia’s attack on Ukraine exacerbated concerns around disruptions to global energy supply. The Russia-Ukraine crisis as well as the sanctions against Russia impacted global oil supply. Furthermore, the US announced a ban on Russian oil on 08 March, which resulted in further upticks in oil prices.

Although oil prices had been volatile since the Russia-Ukrainian crisis began, prices began to dip below USD100/b in August. This was largely driven by concerns around a global economic downturn amid monetary policy tightening by central banks and covid-19 restrictions in China (the largest energy consumer).

Following the oil price decline, in its October ’22 meeting, OPEC unanimously agreed to adjust oil production downwards by 2mbpd in November ‘22. The adjustment was intended to spur a recovery in oil prices. Since the announcement, Brent crude price has increased by 2% to USD95.1/b.

OPEC data shows that Nigeria produced about 1.14mbpd of oil in September ’22 compared with 1.18mbpd recorded in the previous month. This is below the expected 1.6mbpd OPEC quota. Furthermore, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) noted that production from 13 out of 29 oil terminals declined between July to September.

The worst hit crude terminals include Bonny, Brass and Forcados.

In a bid to address the oil theft menace in the Niger Delta region, we understand that the FGN awarded a pipeline surveillance contract worth N48bn per annum run within the region in August. A few months after the contract was awarded, about 58 illegal connections were discovered in both Delta and Bayelsa states.

The FGN further disclosed that a probe mechanism has been setup to ensure culprits face the full extent of the law.
Despite developments regarding clampdowns on illegal oil refineries and bunkering, Nigeria may struggle to fully benefit from the global oil market. The latest commodity output report released by the World Bank (in October) disclosed that the benchmark crude oil price, Brent crude is expected to average USD92/b in 2023.

In an oil producing economy like Nigeria, oil price increases should reflect more revenue dividend as it is expected to enhance foreign exchange earnings and build reserves.

However, payment of petrol subsidy and low oil production occasioned by the activities of oil vandals have hampered oil revenue growth.

We understand that the effects of global warming have triggered the need for countries to shift attention to renewable energy sources. However, Nigeria’s oil economy should experience a face-lift on the back of the Dangote refinery which has an expected refining capacity of c.650,000 bpd.

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

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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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