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Oil Prices Dip Amid OPEC+ Plans to Restore Output and Demand Uncertainty

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Oil prices experienced a turbulent trading session on Monday as the market reacted to OPEC+’s announcement of a plan to gradually restore production starting in October.

This decision, made during an OPEC+ meeting on Sunday, comes amid ongoing concerns about global demand and robust supply from non-OPEC+ producers.

OPEC+ Gradual Restoration Plan

The Saudi Energy Ministry revealed that the current production cuts would continue in full throughout the third quarter of 2024.

However, these cuts will be gradually phased out over the following 12 months. This strategic move aims to balance supporting oil prices while addressing internal pressures from member countries eager to increase their output.

Brent crude oil prices dipped below $81 a barrel, and West Texas Intermediate (WTI) traded under $77, reflecting the market’s immediate reaction to the announcement.

The mixed sentiment in the market underscores the complexity of the current oil landscape, marked by fluctuating demand and varying supply dynamics.

Analyst Reactions and Market Sentiment

The decision has drawn mixed reactions from market analysts. Goldman Sachs Group Inc. labeled the move as bearish, citing recent increases in oil inventories.

In contrast, UBS Group AG and RBC Capital Markets LLC expressed confidence in OPEC+’s ability to manage the market effectively.

Most analysts had anticipated that OPEC+ would maintain its current production curbs through the end of the year.

Vandana Hari, founder of Vanda Insights in Singapore, noted, “The market had not expected an unwinding of the cuts from October. On the positive side for OPEC+, the agreement should help maintain cohesion. A long-term continuation of lopsided cuts would have been a source of friction.”

Market Dynamics and Trading Activity

Monday’s trading volumes were higher than usual, reflecting the heightened interest and uncertainty following the OPEC+ announcement.

Despite this, oil option skews are still signaling bearishness, with puts — financial instruments that profit from lower prices — remaining at a wide premium over calls, which benefit from rising prices.

The oil market has been under pressure due to persistent concerns about the demand outlook, particularly from China, the world’s largest crude importer.

Last week, the prompt spread for Brent briefly slipped into a bearish contango structure, and signs of weakness were evident in fuel markets.

Geopolitical Influences

Despite the recent dip, oil prices have seen overall gains this year, driven by geopolitical tensions from the Middle East to Ukraine.

These conflicts have raised supply concerns, contributing to the volatility. The ongoing war in Gaza and Israel’s rejection of a ceasefire plan proposed by U.S. President Joe Biden have further added to the geopolitical risk premium in oil prices.

Future Outlook

The OPEC+ decision to restore production gradually while continuing to manage the market closely indicates a cautious approach to stabilizing oil prices. The group’s ability to navigate internal dynamics and external pressures will be critical in maintaining market equilibrium.

As the global economy grapples with high interest rates, fluctuating demand, and geopolitical uncertainties, the oil market is likely to remain volatile.

Investors and market participants will closely monitor OPEC+’s actions and their impact on global oil supply and demand dynamics in the coming months.

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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Nigeria Pumps 236.2 Million Barrels in First Half of 2024

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Nigeria pumped 236.2 million barrels of crude oil in the first half of 2024, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

This figure represents an increase from the 219.5 million barrels produced during the same period in 2023.

In January, Nigeria produced 44.2 million barrels of crude oil while February saw a slight dip to 38.3 million barrels, with March following closely at 38.1 million barrels.

April and May production stood at 38.4 million barrels and 38.8 million barrels, respectively. June’s output remained consistent at 38.3 million barrels, demonstrating a stable production trend.

Despite the overall increase compared to 2023, the 2024 production figures still fall short of the 302.42 million barrels produced in the same period in 2020.

This ongoing fluctuation underscores the challenges facing Nigeria’s oil sector, which has experienced varying production levels over recent years.

On a daily basis, Nigeria’s crude oil production showed some variability. In January, the average daily production peaked at 1.43 million barrels per day (mbpd), the highest within the six-month period.

February’s production dropped to 1.32 mbpd, with a further decrease to 1.23 mbpd in March. April saw a modest increase to 1.28 mbpd, which then fell again to 1.25 mbpd in May. June ended on a positive note with a slight rise to 1.28 mbpd.

The fluctuations in daily production rates have prompted government and industry leaders to address underlying issues.

Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), has highlighted the detrimental effects of oil theft and vandalism on Nigeria’s production capabilities.

Kyari emphasized that addressing these security challenges is critical to boosting production and attracting investment.

Kyari also noted recent efforts to combat illegal activities, including the removal of over 5,800 illegal connections from pipelines and dismantling more than 6,000 illegal refineries.

He expressed confidence that these measures, combined with ongoing policy reforms, would support Nigeria’s goal of increasing daily production to two million barrels.

The Nigerian government remains focused on stabilizing and enhancing oil production. With recent efforts showing promising results, there is cautious optimism that Nigeria will achieve its production targets.

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Oil Prices Steady Amid Mixed Signals on Crude Demand

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Oil prices remained stable on Thursday as investors navigated conflicting signals regarding crude demand.

Brent crude oil, against which Nigerian oil is priced, settled at $85.11 a barrel, edging up by 3 cents, while U.S. West Texas Intermediate (WTI) crude dipped by 3 cents to $82.82 a barrel.

The stability comes as the U.S. economy shows signs of slowing, with unemployment benefit applications rising more than expected.

Initial claims increased by 20,000 to a seasonally adjusted 243,000 for the week ending July 1, prompting speculation that the Federal Reserve might cut interest rates sooner than anticipated. Lower rates could boost spending on oil, creating a bullish outlook for demand.

Fed officials suggested that improved inflation and a balanced labor market might lead to rate cuts, possibly by September.

“Healthy expectations of a Fed rate cut in the not-so-distant future will limit downside,” noted Tamas Varga of oil broker PVM.

However, rising jobless claims signal potential economic easing, which could dampen crude demand.

John Kilduff of Again Capital highlighted the impact of a slowing economy on oil consumption despite a significant drop in U.S. crude inventories last week.

Global factors also weighed on the market. China’s economic policies remain steady, though details are sparse, affecting investor sentiment in the world’s largest crude importer.

Meanwhile, the European Central Bank maintained interest rates, citing persistent inflation.

An upcoming OPEC+ meeting in August is expected to assess market conditions without altering output policy, according to sources. This meeting will serve as a “pulse check” for market health.

Overall, oil prices are caught between economic concerns and hopes of a rate cut, maintaining a delicate balance.

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Oil Prices Slide on China Demand Concerns, Brent Falls to $83.73

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Oil prices declined on Tuesday for the third consecutive day on growing concerns over a slowing Chinese economy and its impact on global oil demand.

Brent crude oil, against which Nigerian oil is priced, dipped by $1.12, or 1.3% at $83.73 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $1.15, or 1.4%, to close at $80.76.

The dip in oil prices is largely attributed to disappointing economic data from China, the world’s second-largest economy.

Official figures revealed a 4.7% growth in China’s GDP for the April-June period, the slowest since the first quarter of 2023, and below the forecasted 5.1% growth expected in a Reuters poll.

This slowdown was compounded by a protracted property downturn and widespread job insecurity, which have dampened fuel demand and led many Chinese refineries to cut back on production.

“Weaker economic data continues to flow from China as continued government support programs have been disappointing,” said Dennis Kissler, Senior Vice President of Trading at BOK Financial. “Many of China’s refineries are cutting back on weaker fuel demand.”

Despite the bearish sentiment from China, there is a growing consensus among market participants that the U.S. Federal Reserve could begin cutting its key interest rates as soon as September.

This speculation has helped stem the decline in oil prices, as lower interest rates reduce the cost of borrowing, potentially boosting economic activity and oil demand.

Federal Reserve Chair Jerome Powell noted on Monday that the three U.S. inflation readings over the second quarter “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion.

This has led market participants to believe that a turn to interest rate cuts may be imminent.

Also, U.S. crude oil inventories provided a silver lining for the oil market. According to market sources citing American Petroleum Institute figures, U.S. crude oil inventories fell by 4.4 million barrels last week.

This was a much steeper drop than the 33,000 barrels decline that was anticipated, indicating strong domestic demand.

The International Monetary Fund (IMF) also weighed in, suggesting that while the global economy is set for modest growth over the next two years, risks remain.

The IMF noted cooling activity in the U.S., a bottoming-out in Europe, and stronger consumption and exports for China as key factors in the global economic landscape.

In summary, while oil prices are currently pressured by concerns over China’s economic slowdown, the potential for U.S. interest rate cuts and stronger domestic demand for crude are providing some support.

Market watchers will continue to monitor economic indicators and inventory levels closely as they gauge the future direction of oil prices.

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