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OPEC’s Worst Cheater Will Get Harder to Ignore as Curbs Falter

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  • OPEC’s Worst Cheater Will Get Harder to Ignore as Curbs Falter

OPEC’s second biggest producer is also its biggest cheater.

And if past is prologue, that lengthens the odds the group will be able to squeeze too many more price gains out of its output cuts.

Iraq pumped about 80,000 more barrels of oil a day than permitted by Organization of Petroleum Exporting Countries curbs during the first quarter. If that deal gets extended to 2018, the nation will have even less incentive to comply because capacity at key southern fields is expanding and three years of fighting Islamic state has left it drowning in debt.

“Leaving that productive capacity idle will come with an opportunity cost that Iraq may prove reluctant to bear,” said Harry Tchilinguirian, the London-based head of commodity markets strategy at BNP Paribas SA. He’s nonetheless optimistic that global inventories will fall by year-end as members like Saudi Arabia pick up the slack for Iraq’s transgressions.

A risk, though, emerges if Iraqi compliance worsens to such an extent that other countries in the 13-member group start cutting corners too, exacerbating a global surplus that’s already erased much of the gains that unfolded after the deal was struck in November.

Brent crude tumbled below $50 a barrel this month as data showed U.S. shale producers were alive and kicking, confounding OPEC’s efforts to control the supply glut. While oil recovered losses after Saudi Arabia and Russia threw their weight behind extending the six-month output reductions, it’s still 7 percent off post-deal highs.

“A lot of market participants have been a bit underwhelmed by the impact of the cut,” Martijn Rats, an oil analyst at Morgan Stanley, said in an interview in Dubai. He says OPEC members are most likely to respect curbs if Brent trades in the $50-$60 range, with prices on either side increasing the risk of non-compliance.

Under the November deal, OPEC envisioned curbing 1.2 million barrels per day of output, with Iraq trimming 210,000 barrels a day to 4.351 million barrels a day. In the first quarter, Iraq met only 61 percent of its targeted cut, though compliance improved to 90 percent in April, according to OPEC data. It’s not the only straggler. The United Arab Emirates achieved just 57 percent of its cut in the first quarter, though the U.A.E. exceeded its target in April, and many non-OPEC producers including Russia also missed their goals.

“I doubt Iraq will cut any more in the second half than it has already,” said Robin Mills, the Dubai-based chief executive officer of consultant Qamar Energy. It may instead produce more as it completes maintenance at several fields, new ones start production and seasonal domestic consumption rises, he said. There are some signs this has already started.

Iraq’s peers are tolerating its breaches mostly because Saudi Arabia has slashed 35 percent, or 171,000 barrels a day, more than it needs to, according to OPEC data. As a result, the group met 96 percent of its target cut in the first quarter, an exceptional result given compliance with previous curbs has never before exceeded 80 percent, the International Energy Agency reported.

The stakes are a lot higher for OPEC than they used to be. Its leverage over the global market has receded just as member states like Saudi Arabia fund deficits with more and more borrowed money. That’s why producers would rather turn a blind eye to Iraq’s infractions than jeopardize a deal that both Tchilinguirian and Rats expect will eventually curtail inventories.

It’s not unusual for Iraq to get special treatment. After the U.S. invasion in 2003, it was exempt from quotas to help it rebuild capacity devastated by war and sanctions. It only reluctantly signed the current deal, initially seeking a waiver because, in the words of Oil Minister Jabbar Al-Luaibi, it’s battling militants “on behalf of the world.”

What’s more, Iraq doesn’t have control or even knowledge of its whole oil industry. At the time of last year’s agreement, the semi-autonomous Kurdish region in the north of the country was producing one in every eight of Iraq’s barrels. The Kurds have not reported output figures since October.

Still, Al-Luaibi insists Iraq has followed through on its pledge to pump less. He says the market should gauge its compliance using government figures because OPEC data, drawn from six secondary sources including Platts and Argus Media, underestimated the output level used as the baseline for its production target.

The November deal put Iraq’s output at 4.561 million barrels a day, about 200,000 barrels less than its own estimates. Since then, Al-Luaibi has at times suggested the nation is assessing compliance based on exports not production, further muddying the waters on its acquiescence to the curbs.

With skeptics questioning whether OPEC cuts are deep enough to balance global supply, quota dodging risks becoming more dangerous to condone. If it really wants to confront the glut, the group should double output cuts as a “bare minimum,” Naeem Aslam, the chief market analyst at brokerage Think Markets U.K. in London, said in a May 15 note.

“This is OPEC’s problem: There is no punishment mechanism,” independent oil analyst Anas Alhajji said by phone from Houston. “A deal is one thing, implementation is another.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial market.

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Nigeria to Become Leading Gold Producer in West Africa – Adegbite

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Adegbite Says Nigeria to Become Gold Hub in West Africa

The Minister of Mines and Steel Development, Olamilekan Adegbite, has said Nigeria is on its way to becoming a leading gold producer in West Africa.

Adegbite made the statement in Abuja while taking stock of his first year in office as minister.

He said, “Indeed, the international roadshows we have had in the past have produced fruits. Today, we have Thor exploration in Osun State through the Segilola Gold project.

“The exploration firm is projected to start producing (gold) in the first half of next year. The project is expected to create about 400 direct jobs and 1,000 indirect jobs.”

According to Adegbite, the Federal Government has licensed two gold refineries that would refine in line with the London Bullion Market Association standard.

He added, “Numerous industries will spring up when our gold economy becomes full-fledged. Some of them will include equipment leasing and repairs, logistics and transport, as gold requires a specialised means of transport, security, insurance, aggregators, and so on.”

The minister noted that for the first time, the country had mined, processed and refined gold under the Presidential Artisanal Gold Mining Development Initiative for use as part of Nigeria’s external reserves.

Adegbite also stated that the mines ministry had initiated a process that would lead to local capacity development in the production of barite.

“Presently, the barite that is used in the oil and gas industry is imported. But we are resolved to reverse this trend. As you may know, barite is a critical weighting material in drilling fluids due to its high specific gravity,” he said.

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NUPENG, Lagos State Agree to Call Off Strike

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NUPENG Agrees With Lagos State, Call Off Strike

The Nigeria Union of Petroleum and Gas (NUPENG) has ordered Lagos State Petroleum Tanker Drivers (PTDs) to call off its ongoing strike.

This was disclosed in a joint communique signed by the Lagos Commissioner of Energy and Mineral Resources, Olalere Odusote, and the NUPENG Deputy National President, Solomon Kilanko.

It would be recalled that Investors King had reported that NUPENG directed all PTDs to withdraw their services from Lagos State effective from Monday 10 August 2020 because of the persistent extortions and harassments of PTDs by both uniform security agencies and touts.

However, on the 10th of August, the commencement day of the strike, Lagos State government met with the leadership of NUPENG to address the union concerns and eventually agreed on a way forward.

Part of the communique reads “The Lagos State Government met today with the representatives of NUPENG, which agreed to call off its strike immediately.

“Other decisions taken at the meeting are security – the state government will meet the heads of all security agencies and secure their commitment to ensure the free passage of petroleum products vehicles given their importance to the economy.”

“Area boys’ – the menace of ‘area boys’ will be handled by relevant government agencies and a dedicated phone number will be established, within the next week to ensure the petroleum products transporters have prompt access to security agencies.”

The communique also stated that the Lagos State government will set up a standing committee to communicate with the union on an ongoing basis, saying it will help address a similar issue going forward.  See the complete communique below.

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Crude Oil Expands Gain on US Stimulus talks, Better Than Expected Chinese Factory Data

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Crude Oil Gains on US Stimulus, Better Than Expected Chinese Factory Data

Oil prices extended its gains on Tuesday following a better than expected factory data from China and a possible agreement between Democrats and Republicans on economic stimulus.

“The oil complex is heavily reliant on that aid. We need people to be able to boost economic activity to spur demand,” said John Kilduff, partner at Again Capital in New York.

President Trump on Monday said House Speaker, Nancy Pelosi and Senator Chuck Schumer, top Democrat in the chamber of Congress, wanted to meet him to discuss or make a deal on coronavirus-related economic stimulus.

The possibility of a stimulus deal, coupled with a reduction in China’s factory deflation in the month of July due to the surge in oil prices and improved industrial activity bolstered the outlook of the energy sector.

China is the world’s largest importer of crude oil. Therefore, improved factory activity generally boosts the oil market.

Also, the announcement from Iraq that it planned to cut an additional 400,000 barrels per day in August and September to compensate for its previous overproduction above OPEC+ quota aided the oil market this week.

“This would send out a strong signal to the oil market on various levels. That said, this would also require the international companies operating in Iraq to join in with the cuts,” Commerzbank analyst Eugen Weinberg said.

The Brent crude oil, against which Nigerian oil is priced, expanded from $41.30 per barrel it traded on Monday to $45.40 per barrel on Tuesday at 10:10 am Nigerian time.

UKOilDaily 1While the U.S West Texas Intermediate crude oil rose from $41.48 per barrel to $42.47 per barrel on Tuesday.

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