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Nigeria’s Oil Output Plummets to Record Low as Production Sharing Contracts Struggle

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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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Crude Oil

Oil Prices Stable Amid OPEC+ Anticipation and Global Economic Concerns

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Oil prices remained relatively unchanged on Thursday as investors awaited the outcome of an eagerly anticipated OPEC+ meeting, which could potentially result in deeper supply cuts in 2024.

Brent crude oil increased by 70 cents to $83.80 a barrel, while U.S. West Texas Intermediate crude inched up by 55 cents to settle at $78.41 a barrel.

The OPEC+ group, comprising the Organization of Petroleum Exporting Countries and allies like Russia, is scheduled to conduct virtual meetings on Thursday to discuss additional production cuts, potentially ranging from 1 million to 2 million barrels per day in early 2024.

Implementing these additional cuts may lead to an immediate surge in prices, but their long-term impact is viewed skeptically by industry experts.

Tamas Varga, an oil broker at PVM, expressed doubt about compliance and suggested that the global oil balance might be less tight than OPEC estimates.

Factors such as the latest U.S. commercial inventory data, revealing an unexpected increase of 1.6 million barrels, and persistently high interest rates in major economies could dampen oil demand.

Despite the surprise build in U.S. crude oil stocks reported by the Energy Information Administration on Wednesday, oil prices remained resilient, with investors focused on the OPEC+ meeting.

Adding to concerns about the demand side, China’s economic challenges persist, highlighted by recent factory data indicating contraction for the second consecutive month in November.

This economic backdrop adds a layer of uncertainty to the oil market, as China is a significant player in global oil consumption.

Investors are closely monitoring the OPEC+ decisions, and the outcome is expected to influence short-term oil prices, although underlying economic challenges continue to cast shadows on the broader outlook for the industry.

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Oil Prices Hold Steady Ahead of Crucial OPEC+ Meeting Amidst Fed Rate Hike Signals

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Oil prices maintained their significant gains as traders anticipate the outcome of a crucial OPEC+ meeting on supply while considering signals from the Federal Reserve regarding interest rate policies.

Global benchmark Brent hovered below $82 a barrel, having surged over 2% on Tuesday, while West Texas Intermediate traded under $77.

The OPEC+ meeting, scheduled for Thursday to set policies for 2024, is currently grappling with a dispute over output quotas for some African members.

The recent rise in crude prices is underpinned by a weakening dollar, with a Bloomberg gauge of the US currency reaching its lowest level since August.

Federal Reserve policymakers, including Governor Christopher Waller, have hinted at an impending pause in the series of rate hikes, contributing to the bullish sentiment in oil markets.

A softer dollar enhances the appeal of commodities for international buyers.

Yeap Jun Rong, a market strategist for IG Asia Pte in Singapore, commented on the interplay of factors, stating, “The US dollar was dragged lower on a build-up in dovish expectations, which was very much cheered on by oil prices.”

However, concerns persist about OPEC+’s ability to address the challenges in the oil market effectively.

Despite the recent gains, oil is on track for a consecutive monthly decline due to increased supply from non-OPEC countries, intensifying pressure on the cartel and its allies to consider more significant output cuts.

The International Energy Agency’s earlier assessment indicated a potential return to a global crude surplus in the coming year.

In the US, the American Petroleum Institute reported a 817,000-barrel decline in nationwide inventories last week, potentially marking the first drop in six weeks, pending confirmation from government data.

This development may add support to oil prices and impact the ongoing dynamics in the energy market.

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Oil Prices Stabilize as OPEC+ Weighs Deeper Output Cuts Amid Global Supply Concerns

Market Evaluates OPEC+ Decision Amidst Bearish Sentiment and Global Supply Worries

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Oil prices steadied after a recent downward trend as the market assessed the possibility of OPEC+ implementing deeper output cuts to balance the scales against signs of a global supply surplus.

Brent crude hovered below $80 a barrel following a four-day decline, while West Texas Intermediate dipped below $75.

OPEC+’s leader, Saudi Arabia, has urged other member nations to reduce their production quotas to bolster markets, though resistance from some members complicates the decision.

Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd, cautioned oil bears against underestimating Saudi Arabia’s determination, although achieving unanimous support from member states could prove challenging.

The oil market has witnessed a roughly 20% decline since late September due to ample supplies and concerns about the global economic landscape.

This has spurred expectations for the 23-nation alliance to take corrective action at its upcoming online meeting.

A Bloomberg survey revealed that approximately half of respondents anticipate OPEC+ implementing additional measures to tighten the market.

Failure to announce an extra cut of around 1 million barrels per day on top of Saudi Arabia’s existing curbs might result in prices sinking to the low $70s per barrel, according to analysts at Eurasia Group led by Raad Alkadiri.

Reflecting this bearish sentiment, hedge funds have significantly reduced their combined net-long positions in Brent and WTI to the lowest levels since late June.

The International Energy Agency’s warning earlier this month of an impending surplus in markets next year due to a significant deceleration in demand growth has added urgency to OPEC+’s deliberations.

Meanwhile, disruptions caused by a storm in the Black Sea have halted commodity loadings, including crude, from key ports in Russia and Ukraine.

The storm is expected to persist throughout the week, according to Russia’s oil-pipeline operator Transneft PJSC.

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