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Oil Prices Inch Upward on Red Sea Ship Attacks and Russia’s Export Cut Plans

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Global oil prices experienced an upward trend fueled by a combination of heightened geopolitical tensions and strategic decisions by major players.

The recent attacks on commercial vessels in the Red Sea by Iran-backed Houthi rebels have raised concerns over potential disruptions to oil supply routes.

Shipping giants, including MSC and A.P. Moller-Maersk, have already announced their intention to steer clear of the Suez Canal in response to the escalating assaults.

Brent crude oil, the international benchmark for Nigerian oil, rose by 0.2% to $76.72 a barrel while the U.S. West Texas Intermediate crude oil saw a 0.7% increase to settle at $71.91.

These modest gains mark a shift from the seven consecutive weeks of decline that the oil market experienced.

Analysts point to the rising geopolitical risk premium as a significant factor in the resurgence of oil prices.

The recurrent hostilities towards commercial vessels in the Red Sea have amplified concerns, contributing to a renewed focus on the oil market.

Tamas Varga of oil broker PVM highlighted the indisputable role of geopolitical tensions in influencing oil prices.

Adding to the complex landscape, Russia declared its intention to deepen oil export cuts in December, potentially reducing exports by 50,000 barrels per day or more.

This move comes earlier than initially promised, as Moscow grapples with storm-related disruptions and scheduled maintenance that led to a suspension of about two-thirds of loadings of its main export grade Urals crude from ports.

The weakened dollar further supported oil prices, creating a scenario where dollar-denominated oil becomes more affordable for foreign buyers.

Analysts suggest that this trend reflects a greater risk appetite among investors. As global uncertainties persist, the oil market remains dynamic, responding to a complex interplay of geopolitical events and strategic decisions by key players.

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Nigeria’s Oil Production Rises by 25,000 Barrels Daily, Hits 1.276 Million BPD in July

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Nigeria’s daily oil production increased in July by 25,000 barrels per day to 1.276 million barrels per day (mbpd).

This development was disclosed by the Organisation of the Petroleum Exporting Countries (OPEC) in its Monthly Oil Market Report for June, based on direct communication with the Nigerian government.

In April, production was recorded at 1.28mbpd, but it fell to 1.25mbpd in May.

Secondary sources cited by OPEC indicated a slight decrease from 1.37mbpd in May to 1.36mbpd in June.

This disparity shows Nigeria’s challenges in maintaining a steady increase in oil production.

Mele Kyari, Group Chief Executive Officer of the Nigeria National Petroleum Company Limited (NNPC), had previously stated that crude production was approaching 1.7mbpd in May.

Kyari emphasized the potential for higher production levels, recalling that during the COVID-19 pandemic in April 2020, Nigeria’s production reached 2.2mbpd without new drilling activities.

The drop in production since then has been attributed to various factors, including theft and vandalism of oil infrastructure.

Despite these challenges, Nigeria’s oil production saw a marginal increase in April, rising from 1.23mbpd in March to 1.28mbpd, according to OPEC data.

This increase followed a significant drop from 1.32mbpd in February to 1.23mbpd in March.

Stakeholders have expressed concern over the persistent decline in production and its impact on revenue.

In response, the NNPC declared a state of emergency on oil production, aiming to address the factors hindering output.

At the Nigeria Oil and Gas Conference and Exhibition Week in Abuja, Kyari reaffirmed the NNPC’s commitment to tackling production challenges.

“We have declared war on the challenges affecting our crude oil production. We know what to fight, we have the right tools, and we are working with our partners to improve the situation,” Kyari stated.

The recent increase in daily oil production is a positive development for Nigeria’s oil sector, but sustained efforts are required to achieve long-term stability and growth in production levels.

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Oil Prices Climb as U.S. Inflation Eases, Brent Hits $86

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Oil prices rose on Friday after traders noticed signs of easing inflationary pressures in the United States, the world’s largest oil consumer.

Brent crude oil, against which Nigerian oil is priced, had risen by 72 cents, or 0.8% to $86.12 a barrel.

Meanwhile, U.S. West Texas Intermediate (WTI) crude oil climbed by 85 cents, or 1%, to $83.47 a barrel. Both contracts had also gained in the prior two sessions.

Despite these gains, Brent crude oil was poised to fall by about 1% week-on-week after four consecutive weekly increases.

WTI crude oil, on the other hand, remained broadly stable on a weekly basis.

Investor confidence was boosted after data released on Thursday showed that U.S. consumer prices fell in June, fueling hopes that the Federal Reserve might cut interest rates soon.

Lower rates are expected to spur economic growth, thereby increasing fuel consumption.

However, the market is still awaiting more definitive signs of action. While Federal Reserve Chair Jerome Powell acknowledged the recent trend of improving price pressures, he told lawmakers that more data would be needed to strengthen the case for rate cuts.

“Cooling U.S. inflation numbers may support the case for the Fed to kick-start its policy easing process earlier rather than later, but it also adds to the series of downside surprises in U.S. economic data, which points to a clear weakening of the U.S. economy,” said Yeap Jun Rong, a market strategist at IG.

In addition to inflation data, indications of strong summer fuel demand in the U.S. also supported prices. U.S. gasoline demand was at 9.4 million barrels per day (bpd) in the week ended July 5, the highest level since 2019 for the week that includes the Independence Day holiday, according to government data released on Wednesday.

Jet fuel demand on a four-week average basis was at its strongest since January 2020.

“The market will remain range-bound, paralyzed by opposing forces of expected demand recovery fueled by anticipation of a strong summer for fuel consumption … but sentiment remains pegged by ongoing economic weakness and uncertain demand recovery,” said Emril Jamil, a senior oil analyst at LSEG.

The strong fuel demand encouraged U.S. refiners to ramp up activity and draw from crude oil stockpiles. U.S. Gulf Coast refiners’ net input of crude rose last week to more than 9.4 million bpd for the first time since January 2019, government data showed.

However, weaker demand signs from China, the world’s largest oil importer, could counter the positive outlook from the U.S. and weigh on prices.

“The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11% in June from the previous year,” said Tamas Varga of oil broker PVM.

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NUPRC and Oil Producers Agree on Market Price Sales for Domestic Crude Supply

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Dangote Refinery

The Federal Government, through the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), has reached an agreement with oil producers to permit the sale of crude oil to domestic refiners at market prices.

This resolution brings an end to a protracted supply dispute that has strained relations with international oil companies (IOCs).

The NUPRC explained that pricing issues should not hinder domestic refining, adding that it is committed to preventing “crude supply profiteering” while ensuring oil production remains profitable.

Gbenga Komolafe, Chief Executive of the NUPRC, said the regulator’s responsibility is to balance upstream development with a sustainable domestic energy supply chain.

“We will never allow price strangulation to disincentivize our domestic refining capacity optimization,” Komolafe said. To ensure transparency, he requested monthly cargo price quotes on crude oil supply and delivery from both producers and refiners.

Earlier this year, the NUPRC directed local and international oil companies to prioritize supplying crude oil to local refineries.

The regulator set a target of 483,000 barrels to local refineries, with the Dangote refinery expected to receive 325,000 barrels daily.

The Warri and Port Harcourt refineries are slated to receive 75,000 and 54,000 barrels per day, respectively, while smaller refineries like Waltersmith, OPAC, and Niger Delta Petroleum Refinery are set to receive 10,000 barrels per day or less.

In April, the NUPRC mandated that all oil companies in Nigeria supply crude oil to domestic refineries unable to source it locally before exporting any surplus.

The Petroleum Industry Act (PIA) mandates that IOCs must first meet local demand by supplying crude oil to domestic refineries before exporting any surplus.

Last month, Devakumar Edwin, Vice President of Oil and Gas at Dangote Industries Limited (DIL), accused IOCs in Nigeria of deliberately attempting to undermine the Dangote Oil Refinery and Petrochemicals.

Edwin claimed that IOCs were inflating premium prices above market rates, forcing the refinery to import crude from distant countries like the United States, resulting in significantly higher costs.

The Dangote refinery, with a capacity of 650,000 barrels per day, is expected to significantly reduce Nigeria’s dependence on imported petrol, especially in the era of post-subsidy removal.

The NUPRC’s agreement with oil producers to sell crude at market prices is a pivotal step in strengthening the country’s refining capacity and ensuring a stable domestic energy supply.

This move is anticipated to bolster Nigeria’s oil industry and contribute to the nation’s economic stability.

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