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U.S. Crude Stocks Rise: Will OPEC+ Production Cuts Counterbalance the Oversupply?

Brent crude oil, against which Nigerian oil is priced, declined by 0.5% to $85.13 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped by 0.6% to $78.57

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Crude oil - Investors King

Oil prices faced a second-day drop on Wednesday due to the overwhelming signs of surplus U.S. supplies and expectations of increased interest rates, which reduced the losses in the market.

The U.S. crude stock numbers surpassed the anticipated figures with an increment of 10.5 million barrels, which indicated that the U.S. is “swimming in oil.”

Brent crude oil, against which Nigerian oil is priced, declined by 0.5% to $85.13 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped by 0.6% to $78.57, down by more than a dollar in earlier trading. These drops came as a result of the potential tightening of the market and the increased demand growth forecasts for 2023.

On the other hand, U.S. inflation data and comments from central bank officials indicating that interest rates would increase for a longer period also weighed heavily on the market.

This week, the U.S. announced the sale of 26 million barrels of oil from the nation’s strategic reserve, which already stands at its lowest level in four decades. The announcement is expected to put more pressure on crude prices. The surplus in U.S. crude stock numbers and the sale of the strategic reserve could lead to further market disruption.

However, the International Energy Agency (IEA) reported a forecast for a 2023 increase in oil demand growth, which could counterbalance the oversupply situation. The restrained OPEC+ production, coupled with the shut-in production from OPEC+ member Russia, could cause a supply deficit in the second half of the year.

The IEA predicts that about 1 million barrels per day (bpd) of production from Russia will be shut in by the end of the first quarter due to a European ban on seaborne imports and a G7 price cap over the invasion of Ukraine.

OPEC also raised its projection for global oil demand growth, which could indicate a tighter market in 2023. However, there is still much uncertainty about the future of the oil market, and investors need to remain cautious.

The oversupply situation in the U.S. crude market is likely to continue, but the OPEC+ production cuts and the shut-in production from Russia could counterbalance the oversupply situation in the second half of 2023.

The increase in oil demand growth forecasted by the IEA and OPEC also provides some hope for a potentially tighter market. Nevertheless, investors must keep a watchful eye on the market as it remains volatile, and the future remains uncertain.

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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Crude Oil

IOCs Stick to Dollar Dominance in Crude Oil Transactions with Modular Refineries

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International Oil Companies (IOCs) are standing firm on their stance regarding the currency denomination for crude oil transactions with modular refineries.

Despite earlier indications suggesting a potential shift towards naira payments, IOCs have asserted their preference for dollar dominance in these transactions.

The decision, communicated during a meeting involving indigenous modular refineries and crude oil producers, shows the complex dynamics shaping Nigeria’s energy landscape.

While the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) had previously hinted at the possibility of allowing indigenous refineries to purchase crude oil in either naira or dollars, IOCs have maintained a firm stance favoring the latter.

Under this framework, modular refineries would be required to pay 80% of the crude oil purchase amount in US dollars, with the remaining 20% to be settled in naira.

This arrangement, although subject to ongoing discussions, signals a significant departure from initial expectations of a more balanced currency allocation.

Representatives from the Crude Oil Refinery Owners Association of Nigeria (CORAN) said the decision was not unilaterally imposed but rather reached through deliberations with relevant stakeholders, including the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

While there were initial hopes of broader flexibility in currency options, the dominant position of IOCs has steered discussions towards a more dollar-centric model.

Despite reservations expressed by some participants, including modular refinery operators, the consensus appears to lean towards accommodating the preferences of major crude oil suppliers.

The development underscores the intricate negotiations and power dynamics shaping Nigeria’s energy sector, with implications for both domestic and international stakeholders.

As discussions continue, attention remains focused on how this decision will impact the operations and financial viability of modular refineries in Nigeria’s evolving oil landscape.

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Crude Oil

Brent Crude Hits $88.42, WTI Climbs to $83.36 on Dollar Index Dip

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Brent crude oil - Investors King

Oil prices surged as Brent crude oil appreciated to $88.42 a barrel while U.S. West Texas Intermediate (WTI) crude climbed to $83.36 a barrel.

The uptick in prices comes as the U.S. dollar index dipped to its lowest level in over a week, prompting investors to shift their focus from geopolitical tensions to global economic conditions.

The weakening of the U.S. dollar, a key factor influencing oil prices, provided a boost to dollar-denominated commodities like oil. As the dollar index fell, demand for oil from investors holding other currencies increased, leading to the rise in prices.

Investors also found support in euro zone data indicating a robust expansion in business activity, with April witnessing the fastest pace of growth in nearly a year.

Andrew Lipow, president of Lipow Oil Associates, noted that the market had been under pressure due to sluggish growth in the euro zone, making any signs of improvement supportive for oil prices.

Market participants are increasingly looking beyond geopolitical tensions and focusing on economic indicators and supply-and-demand dynamics.

Despite initial concerns regarding tensions between Israel and Iran and uncertainties surrounding China’s economic performance, the market sentiment remained optimistic, buoyed by expectations of steady oil demand.

Analysts anticipate the release of key economic data later in the week, including U.S. first-quarter gross domestic product (GDP) figures and March’s personal consumption expenditures, which serve as the Federal Reserve’s preferred inflation gauge.

These data points are expected to provide further insights into the health of the economy and potentially impact oil prices.

Also, anticipation builds around the release of U.S. crude oil inventory data by the Energy Information Administration, scheduled for Wednesday.

Preliminary reports suggest an increase in crude oil inventories alongside a decrease in refined product stockpiles, reflecting ongoing dynamics in the oil market.

As oil prices continue their upward trajectory, investors remain vigilant, monitoring economic indicators and geopolitical developments for further cues on the future direction of the market.

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Crude Oil

NNPC and Newcross Set to Boost Awoba Unit Field Production to 12,000 bpd

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NNPC - Investors King

NNPC and Newcross Exploration and Production Ltd are working together to increase production at the Awoba Unit Field to 12,000 barrels per day (bpd) within the next 30 days.

This initiative, aimed at optimizing hydrocarbon asset production, follows the recent restart of operations at the Awoba field, which commenced this month after a hiatus.

The field, located in the mangrove swamp south of Port Harcourt, Rivers State, ceased production in 2021 due to logistical challenges and crude oil theft.

The joint venture between NNPC and Newcross is poised to bolster national revenue and meet OPEC production quotas, contributing significantly to Nigeria’s energy sector.

Mele Kyari, NNPC’s Group Chief Executive Officer, attributes this achievement to a conducive operating environment fostered by the administration of President Bola Ahmed Tinubu.

The endeavor underscores a collective effort involving stakeholders from various sectors, including staff, operators, host communities, and security agencies, aimed at revitalizing Nigeria’s oil and gas sector.

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