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Why Investors Will Continue to Shy Away From Investing in Downstream Oil Sector – FG

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The Federal Government of Nigeria has revealed that investors have been shunning investment in the nation’s downstream oil sector because the cost of petroleum products were not market driven.

According to the government at the centre, this reality would remain until the regime of subsidy is over in the country.

This was disclosed by the Minister of State for Petroleum Resources, Chief Timipre Sylva, while speaking in Abuja at the scorecard series (2015-2023) of the President Muhammadu Buhari-led administration.

Sylva said it was unfortunate that the country is still operating petrol subsidy regime, declaring that it is evident to anyone that subsidy is not sustainable and should be discarded.

The minister noted that investors would keep ignoring woos to invest in the nation’s downstream sector until the price of petroleum products were market driven.

While wondering how possible is it for investors to invest in a nation with subsidized regime, Sylva opined that refinery would not also make profit under the same subsidy period.

He maintained that with a market-driven condition in the downstream oil sector, scores of investors would throng the country to invest, thereby improving the economy.

Canvassing for more refineries in the country, the minister noted that difficulty in accessing petroleum products would be over.

He also emphasised that the Nigerian National Petroleum Company Limited has been selling petrol without gain owing to PMS subsidy.

Recall that had oil marketers stated that the supply hitches in the downstream oil sector that often leads to fuel scarcity, might persist till June, based on the government’s plan to end petrol subsidy in that month.

Last week, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said the Federal Government had budgeted about N3.6tn for fuel subsidy till June 2023.

Sylva, while speaking in Abuja on Monday, insisted that subsidy had been a burden, but stressed that it was a mandate on NNPC which had made the oil firm to continue selling PMS at a loss.

He said the cost of the commodity in Nigeria was not as high as what was obtained in other countries, but stressed that the current national consensus was that subsidy on petrol was no longer sustainable.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Brent Crude Approaches $86 Following Moscow Attacks

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Amid escalating geopolitical tensions following the devastating terrorist attacks in Moscow, global oil markets rose with Brent crude oil hitting a $86 price level.

The tragic events in the Russian capital, which claimed the lives of over 130 innocent civilians, sent shockwaves through international communities and rattled energy markets already grappling with supply uncertainties.

Speculation surrounding the attacks, claimed by the Islamic State but with hints of potential Ukrainian involvement from Russian President Vladimir Putin, intensified concerns about potential disruptions to oil supplies.

Also, ongoing drone strikes by Ukraine targeting Russian infrastructure further exacerbated worries about the stability of crude oil production and refining capabilities in the region.

The mounting geopolitical unrest in key oil-producing regions has injected a sense of urgency into the market, with investors closely monitoring developments for potential impacts on global supply and demand dynamics.

Despite recent fluctuations, crude oil is poised for a third consecutive monthly gain, buoyed by efforts from the OPEC+ alliance to maintain production cuts and bolstered by tightening US sanctions on Russian energy exports.

The bullish sentiment is further supported by positive commentary on the broader commodities outlook, with central banks signaling potential interest rate reductions to stimulate economic growth, thus underpinning industrial and consumer demand for raw materials.

Analysts remain cautiously optimistic about the trajectory of oil prices, citing a delicate balance between supply risks and supportive macroeconomic factors amidst the backdrop of geopolitical turmoil.

As Brent crude inches closer to the $86 threshold, market participants brace for continued volatility amid unfolding geopolitical developments.

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Indian Refiners Shun Russian Crude Carried by Sovcomflot Tankers Amidst US Sanctions

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Indian refiners have taken a bold stance by refusing to accept Russian crude oil carried on PJSC Sovcomflot tankers, citing stringent US sanctions.

This decision marks a significant shift in India’s energy strategy and underscores the profound impact of global politics on the oil trade.

The move comes in the wake of heightened scrutiny on Sovcomflot tankers following sanctions imposed by the US Treasury’s Office of Foreign Assets Control.

Designating Sovcomflot and identifying specific crude oil tankers, the US has intensified its efforts to clamp down on entities linked to Russia, particularly in the aftermath of the Ukraine invasion.

Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp., Mangalore Refinery & Petrochemicals Ltd., and Nayara Energy Ltd. have all halted the acceptance of cargoes carried on Sovcomflot vessels.

This unified action underscores the severity of the situation, with refiners diligently scrutinizing tanker ownership to ensure compliance with sanctions.

The repercussions of this decision are reverberating throughout the oil market, leading to disruptions in the supply chain and altering trade dynamics.

With fewer tankers available to transport Russian crude, the pricing landscape has undergone a significant shift, with discounts narrowing to compensate for higher freight costs.

Despite the challenges posed by sanctions and supply chain disruptions, India remains a key player in the global oil market.

However, the decision to shun Russian crude on Sovcomflot tankers reflects a strategic recalibration in response to evolving geopolitical realities, underscoring the complex interplay between politics and energy security on the world stage.

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