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Oil Prices Dip Over 1% Due to Saudi Arabia’s Price Cuts And Increased OPEC Output



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Oil prices dipped by more than 1% on Monday following Saudi Arabia’s strategic decision to implement sharp price cuts and a simultaneous rise in OPEC output.

This development countered concerns surrounding escalating geopolitical tensions in the Middle East and illustrated the complex dynamics influencing global oil markets.

Brent crude oil, against which Nigerian crude oil is priced, slipped by 1.09% or 86 cents to settle at $77.90 per barrel at around 4:44 am on Monday.

Concurrently, U.S. West Texas Intermediate crude oil witnessed a decline of 1.15% or shed 85-cent close at $72.96 per barrel.

The notable move by Saudi Arabia involved cutting the February official selling price (OSP) of its primary Arab Light crude to Asia, reaching the lowest level observed in 27 months.

Vandana Hari, the founder of Vanda Insights and a prominent oil market analysis provider, highlighted this action as reinforcing the narrative of weak demand.

Analysts like Tony Sycamore from IG acknowledged the bearish outlook portrayed by fundamental factors such as increased inventories, elevated OPEC/non-OPEC production, and lower-than-expected Saudi OSP.

However, he emphasized that geopolitical tensions in the Middle East could act as a mitigating factor, introducing a level of uncertainty to the market dynamics.

The first week of 2024 witnessed both Brent crude and U.S. West Texas Intermediate crude futures experiencing a positive surge of over 2%, primarily attributed to heightened geopolitical risks in the Middle East.

Attacks by Yemeni Houthis on ships in the Red Sea intensified concerns, prompting investors to focus on potential disruptions to the region’s stability.

The ongoing visit of U.S. Secretary of State Antony Blinken to the Middle East added to the geopolitical narrative.

Blinken expressed apprehensions about the Gaza conflict spreading unless concerted peace efforts were made.

In contrast, Israeli Prime Minister Benjamin Netanyahu vowed to persist in the conflict until Hamas was eradicated.

Despite these geopolitical concerns providing upward pressure on oil prices, a Reuters survey revealed that OPEC’s output increased by 70,000 barrels per day (bpd) in December, reaching 27.88 million bpd.

Analysts, including Vandana Hari, regarded the tensions in the Red Sea as a somewhat weak and intermittent counterweight against the broader bearish sentiment influenced by expectations of softened global demand and rising inventories.

Adding another layer to the oil market dynamics, Baker Hughes reported a marginal increase of one oil drilling rig in the U.S., bringing the total to 501 for the week.

JPMorgan forecasted the addition of 26 oil rigs in the coming year, with a concentration expected in the Permian region during the first half of 2024.

The juxtaposition of these factors contributes to the intricate landscape shaping the trajectory of oil prices in the near term.

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Dangote Refinery Leverages Cheaper US Oil Imports to Boost Production



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The Dangote Petroleum Refinery is capitalizing on the availability of cheaper oil imports from the United States.

Recent reports indicate that the refinery with a capacity of 650,000 barrels per day has begun leveraging US-grade oil to power its operations in Nigeria.

According to insights from industry analysts, the refinery has commenced shipping various products, including jet fuel, gasoil, and naphtha, as it gradually ramps up its production capacity.

The utilization of US oil imports, particularly the WTI Midland grade, has provided Dangote Refinery with a cost-effective solution for its feedstock requirements.

Experts anticipate that the refinery’s gasoline-focused units, expected to come online in the summer months will further bolster its influence in the Atlantic Basin gasoline markets.

Alan Gelder, Vice President of Refining, Chemicals, and Oil Markets at Wood Mackenzie, noted that Dangote’s entry into the gasoline market is poised to reshape the West African gasoline supply dynamics.

Despite operating at approximately half its nameplate capacity, Dangote Refinery’s impact on regional fuel markets is already being felt. The refinery’s recent announcement of a reduction in diesel prices from N1,200/litre to N1,000/litre has generated excitement within Nigeria’s downstream oil sector.

This move is expected to positively affect various sectors of the economy and contribute to reducing the country’s high inflation rate.

Furthermore, the refinery’s utilization of US oil imports shows its commitment to exploring cost-effective solutions while striving to meet Nigeria’s domestic fuel demand. As the refinery continues to optimize its production processes, it is poised to play a pivotal role in Nigeria’s energy landscape and contribute to the country’s quest for self-sufficiency in refined petroleum products.

Moreover, the Nigerian government’s recent directive to compel oil producers to prioritize domestic refineries for crude supply aligns with Dangote Refinery’s objectives of reducing reliance on imported refined products.

With the flexibility to purchase crude using either the local currency or the US dollar, the refinery is well-positioned to capitalize on these policy reforms and further enhance its operational efficiency.

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Oil Prices Decline for Third Consecutive Day on Weaker Economic Data and Inventory Concerns



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Oil prices extended their decline for the third consecutive day on Wednesday as concerns over weaker economic data and increasing commercial inventories in the United States weighed on oil outlook.

Brent oil, against which Nigerian oil is priced, dropped by 51 cents to $89.51 per barrel, while U.S. West Texas Intermediate crude oil fell by 41 cents to $84.95 a barrel.

The softening of oil prices this week reflects the impact of economic headwinds on global demand, dampening the gains typically seen from geopolitical tensions.

Market observers are closely monitoring how Israel might respond to Iran’s recent attack, though analysts suggest that this event may not significantly affect Iran’s oil exports.

John Evans, an oil broker at PVM, remarked on the situation, noting that oil prices are readjusting after factoring in a “war premium” and facing setbacks in hopes for interest rate cuts.

The anticipation for interest rate cuts received a blow as top U.S. Federal Reserve officials, including Chair Jerome Powell, refrained from providing guidance on the timing of such cuts. This dashed investors’ expectations for significant reductions in borrowing costs this year.

Similarly, Britain’s slower-than-expected inflation rate in March hinted at a delay in the Bank of England’s rate cut, while inflation across the euro zone suggested a potential rate cut by the European Central Bank in June.

Meanwhile, concerns about U.S. crude inventories persist, with a Reuters poll indicating a rise of about 1.4 million barrels last week. Official data from the Energy Information Administration is awaited, scheduled for release on Wednesday.

Adding to the mix, Tengizchevroil announced plans for maintenance at one of six production trains at the Tengiz oilfield in Kazakhstan in May, further influencing market sentiment.

As the oil market navigates through a landscape of economic indicators and geopolitical events, investors remain vigilant for cues that could dictate future price movements.

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IEA Cuts 2024 Oil Demand Growth Forecast by 100,000 Barrels per Day



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The International Energy Agency (IEA) has reduced its forecast for global oil demand growth in 2024 by 100,000 barrels per day (bpd).

The agency cited a sluggish start to the year in developed economies as a key factor contributing to the downward revision.

According to the latest Oil Market Report released by the IEA, global oil consumption has continued to experience a slowdown in growth momentum with first-quarter growth estimated at 1.6 million bpd.

This figure falls short of the IEA’s previous forecast by 120,000 bpd, indicating a more sluggish demand recovery than anticipated.

With much of the post-Covid rebound already realized, the IEA now projects global oil demand to grow by 1.2 million bpd in 2024.

Furthermore, growth is expected to decelerate further to 1.1 million bpd in the following year, reflecting ongoing challenges in the market.

This revision comes just a month after the IEA had raised its outlook for 2024 oil demand growth by 110,000 bpd from its February report.

At that time, the agency had expected demand growth to reach 1.3 million bpd for 2024, indicating a more optimistic outlook compared to the current revision.

The IEA’s latest demand growth estimates diverge significantly from those of the Organization of the Petroleum Exporting Countries (OPEC). While the IEA projects modest growth, OPEC maintains its forecast of robust global oil demand growth of 2.2 million bpd for 2024, consistent with its previous assessment.

However, uncertainties loom over the global oil market, particularly due to geopolitical tensions and supply disruptions.

The IEA has highlighted the impact of drone attacks from Ukraine on Russian refineries, which could potentially disrupt fuel markets globally.

Up to 600,000 bpd of Russia’s refinery capacity could be offline in the second quarter due to these attacks, according to the IEA’s assessment.

Furthermore, unplanned outages in Europe and tepid Chinese activity have contributed to a lowered forecast of global refinery throughputs for 2024.

The IEA now anticipates refinery throughputs to rise by 1 million bpd to 83.3 million bpd, reflecting the challenges facing the refining sector.

The situation has raised concerns among policymakers, with the United States expressing worries over the impact of Ukrainian drone strikes on Russian oil refineries.

There are fears that these attacks could lead to retaliatory measures from Russia and result in higher international oil prices.

As the global oil market navigates through these challenges, stakeholders will closely monitor developments and adjust their strategies accordingly to adapt to the evolving landscape.

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