Oil prices drop as US COVID-19 cases surge raise demand concerns
Oil prices fell on Tuesday, erasing earlier gains, on fears that the recent spike in confirmed COVID-19 cases in the US could affect the recovery in oil demand.
US West Texas Intermediate (WTI) crude futures dropped 0.64 percent to $40.37 per barrel, while Brent crude futures fell to $42.92 (0.42 percent).
In contrast, the price of Nigeria’s crude grades is on the increase. Bonny Light rose to $43.69 (0.36 percent), while Brass River and Qua Iboe also rose to $43.26 (0.39 percent) respectively on Monday.
According to a Reuters tally, 16 states in the US have recorded an increase in new COVID-19 cases between July 1 to July 5.
Florida has re-introduced some limits on economic reopening to tackle the rise in COVID-19 cases.
While California and Texas, two of the most populous and economical states in the US, are also reporting high infection rates as a percentage of COVID-19 tests conducted in the last week.
The Organisation of Petroleum Exporting Countries (OPEC) and its allies including Russia, also known as OPEC+, are cutting supply by 9.7 million barrels per day (bpd) in July; the third consecutive month.
The crude oil output would increase slightly in August as 7.7 million barrels per day would be cut off global supply.
NEITI wants ECA funds moved to NSIA as part of economic reform
The Nigeria Extractive Industries Transparency Initiative (NEITI) has advised that the federal government boost its savings by channelling more funds to the Nigerian Sovereign Investment Authority (NSIA).
In a policy brief titled ‘Insulating Nigeria from perennial oil price volatility’, NEITI said the NSIA is one of the smallest sovereign wealth funds in the world with $2 billion.
Providing ways to achieve better savings, NEITI recommended the abolishment of the excess crude account and the 0.5 percent stabilisation fund and then transferring the balance in those accounts to the NSIA.
Since its establishment in 2003, there have been questions about the legitimacy of the excess crude account.
NEITI also advised that the oil price-based fiscal rule (OPFR) which allows for revenues in excess of the oil price benchmark be abolished and replaced with a mandatory saving of a percentage of daily oil production.
All these, it said, would help Nigeria build buffers against the volatility of crude oil prices.
The COVID-19 pandemic, which resulted in lockdowns across various countries of the world, reduced demand for crude oil and a supply glut made crude prices tank on the global market.
However, countries have begun to emerge from lockdowns and a supply cut implemented by the Organisation of Petroleum Exporting Countries (OPEC) and its allies have helped prices rise to above $41 per barrel from a period when the US West Texas Intermediate (WTI) was offered to buyers at negative prices.
NEITI advised that Nigeria should not be distracted by rising oil prices saying the “next oil price crash is a matter of when not if”.
In total, all three crude earnings savings account held by Nigeria have a cumulative sum of $2.25 billion.
“By contrast, Norway (a country of 5.3 million people) has a sovereign wealth fund worth more than $1 trillion. The Scandinavian country is withdrawing $37 billion (382 Kroner) or less than 4% of its hefty savings to fund its 2020 budget,” NEITI said.
“Norway saves all its oil money while Angola saves proceeds from 10 percent of its daily production.
“At this stage of its development and based on its current needs, Nigeria cannot do like Norway but it can be like Angola and save proceeds of between 5 percent and 20 percent of its daily oil production.
“With this, Nigeria could easily save between $1 billion and $3 billion every year even in a period of low oil prices. Abolishing the OPFR also removes the constant political jousting about oil benchmark price and quantity.”
It also recommended that the stabilisation fund be increased from 20 percent to 40 percent of NSIA’s holdings and dividends from NSIA earnings be shared among the three tiers of government every year.
“Increasing NSIA’s stabilisation fund (the portion available for budget supplementation) and sharing dividends from the investment will give comfort to states and LGs to support the constitutional amendment and the scrapping of ECA,” it said.
“Instead of just sitting in ECA, the fund will be invested to generate other streams of income for the federation.”
Other recommendations provided by NEITI include increasing tax revenue using a low rate-wide base technique by capturing the informal sector, boosting non-oil exports, blocking leakages in the oil and gas sector, fast-tracking the passage of the petroleum industry bill and boosting gas production and utilisation.
Featured image: Waziri Adio, NEITI executive secretary
Nigeria’s Bonny Light rise above $25 as Saudi Arabia further cuts supply
The price of Nigeria’s crude grades rose above $25 per barrel on Tuesday after some countries announced plans to further cut supply to the global crude market.
This is in addition to a 9.7 million barrels cuts agreed on by the Organisation of Petroleum Exporting Countries (OPEC) and its allies.
Saudi Arabia announced that it would further cut output by one million barrels per day, Kuwait by 80,000 barrels and UAE by 100,000 barrels.
OPEC’s supply cuts took effect from May 1.
The additional cuts announced by the three countries would take effect from June 1.
With the additional cut, Saudi Arabia’s production for June is now down to 7.492 million barrels per day from its 12 million barrels capacity.
Brent crude, the global benchmark of crude oil crossed the $30 mark on Tuesday to trade at $30.32 per barrel.
Bonny Light, a Nigerian crude grade, was also up 1.2% to trade at $25.23 per barrel.
Brass River and Qua Iboe oil price both fell to $26.71 per barrel representing a 3. 36% decline.
At the April OPEC meeting, Nigeria volunteered to cut reduce its crude oil production by 417,000 barrels per day.
The cut means that Nigeria’s daily production would be set averagely at 1.41 million barrels per day; 300,000 barrels less than the 1.7 million barrels in the adjusted 2020 budget.
Report: 84 million barrels of Nigerian crude stranded at sea
An estimated 84 million barrels of Nigerian crude oil is currently stranded at sea, a report by Wall Street Journal has said.
In an April 27 report, the newspaper said cargo ships filled with Nigerian crude had nowhere to go and Nigerian oil companies were competing to fill the “last few empty tankers still left at sea”.
The tankers are reported to be coming from production fields managed by Royal Dutch Shell and Exxon Mobil.
According to experts, it would be risky to shut down production in some oil fields as the wells are “too old to be restarted once they go idle”.
However, a situation where companies run out of vessels would make shutting the oil fields inevitable.
“When there are no more vessels to load the crude, then the entire world collapses,” Kola Karim, the chairman of Shoreline Natural Resources, was quoted to have said.
“You will have serious, serious security implications. Unrest.”
According to the Wall Street Journal, a tanker was turned back from the US Gulf Coast and it returned to the Canary Islands, where other Nigerian-hired ships are idled.
The COVID-19 pandemic has resulted in reduced demand for crude oil across the world and a price war between Saudi Arabia and Russia worsened an already bad situation.
In response to the fall in crude prices, Nigeria slashed its 2020 budget and reduced the budgeted crude benchmark.
The Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) also agreed on a graduated supply cut that is scheduled to last till April 2022.
Nigeria currently has 1,918 active cases of the coronavirus in addition to 385 recoveries and 85 deaths.
Crude oil price hits $34 as Trump lobbies Saudi Arabia to cut production
Crude oil prices rose above $30 on Friday after indications that oil-producing partners of the Organisation of Petroleum Exporting Countries, also known as OPEC+, would hold a meeting on Monday.
Donald Trump, president of the United States, had said a production cut as high as 15 million barrels may be implemented.
He, however, did not indicate if the US would join in cutting production.
“Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 million barrels, and maybe substantially more which, if it happens, will be great for the oil & gas industry,” he tweeted.
“Could be as high as 15 million barrels. Good (great) news for everyone.”
After Trump tweeted, the Kingdom of Saudi Arabia released a statement calling for an urgent meeting of OPEC+ and other countries to reach a “fair agreement”.
“The Kingdom of Saudi Arabia would like to draw attention to the efforts it has exerted during the past period to reach an agreement within OPEC + group to restore equilibrium in the oil market as it has garnered the support of as many as 22 countries within OPEC + group, but it was not possible to reach an agreement due to lack of consensus,” the statement published by Saudi press agency read.
“Today, the Kingdom calls for an urgent meeting for OPEC+ group and other countries, with the aim of reaching a fair agreement to restore the desired balance of oil markets.
“This invitation comes within the framework of the Kingdom’s constant efforts to support the global economy in this exceptional circumstance, and in appreciation of President Donald Trump of the United States of America’s request and the US friends’ request.”
Oil price hit $71 per barrel after Saudi attack — biggest intra-day spike since 1988
The price of Brent crude gained $12 in early trading on Monday to hit $71.95 per barrel after an attack on oil facilities in Saudi Arabia.
Yemen’s Houthi rebels had claimed responsibility for attacks on Saudi Aramco oil facilities in Abqaiq where the world’s biggest crude-processing facility is located and the kingdom’s second-biggest oil field in Khurais saying 10 drones were deployed for the attack.
The attack cut five percent of global oil supply and it is estimated that Saudi lost 5.7 million barrels of its 9.8 million barrels daily production according to the August data provided by the Organisation of Petroleum Exporting Countries (OPEC).
Brent crude futures, the international benchmark of crude oil, recorded its biggest gain since it was launched in seconds when trading opened on Monday.
The price of West Texas Intermediate crude, which is traded by the United States of America, was also higher by 9.5%, hitting $60.06 per barrel.
In a series of tweets on Sunday night, Donald Trump, president of the US, said he has ordered the release of the country’s oil reserves to keep the markets well-supplied.
Based on the attack on Saudi Arabia, which may have an impact on oil prices, I have authorized the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be-determined amount….
— Donald J. Trump (@realDonaldTrump) September 15, 2019
….sufficient to keep the markets well-supplied. I have also informed all appropriate agencies to expedite approvals of the oil pipelines currently in the permitting process in Texas and various other States.
— Donald J. Trump (@realDonaldTrump) September 15, 2019
According to the International Energy Agency (IEA), the loss suffered is higher than that suffered by Iran during the Islamic Revolution in 1979.
It is also higher than the August 1990 drop in Kuwaiti and Iraqi oil output when Saddam Hussein invaded the Middle East country.
NBS: Europe was Nigeria’s largest crude customer in Q1 2018
The Foreign Trade in Goods report for the first quarter of 2018 shows that most of Nigeria’s crude was purchased by countries in Europe.
The report, which was released by the National Bureau of Statistics on Wednesday, said crude oil accounted for 76.3% of the total exports in that quarter.
According to the report, Nigeria realised N3.5 billion as proceeds from crude oil exports.
The top five destinations of Nigeria’s crude were Europe, Asia, The Americas, Africa and Oceania.
“The value of crude oil export stood at N3.580 billion in the first quarter of 2018, which accounted for 76.3 % of the total exports from Nigeria,” the report read.
The value of crude oil exports was said to be 10% higher than that recorded in Q4 2017 when N3.2 billion was realised.
It was also 50.74% higher than Q1 2017 where N2.3 billion was recorded as revenue.
Quoting secondary sources, the Organisation of Petroleum Exporting Countries (OPEC) monthly oil market report (MOMR) had said that Nigeria’s crude oil production was 1.78 million barrels per day (b/d), 1.79 million b/d and 1.81 million b/d in January, February and March respectively.
According to the half-year crude destination report released by the Nigerian National Petroleum Corporation (NNPC), India was the largest buyer of Nigeria’s crude.
Oil revenue to take a hit as buyers ignore Nigerian crude
Projected revenue from the sale of crude oil may be affected as a number of crude cargoes from June loading programmes have remained unsold.
This is according to trading data received by Reuters.
Out of a total of 60 cargoes from the June loading, buyers have taken up 40 — at a time when July programmes have already been released.
Qua Iboe, Forcados and Bonga along with a few smaller grades released for July programmes were added to the unsold 20 cargoes leading to a large volume of Nigerian crude in the market.
Angola, another West African crude oil trader, has sold 42 out of the 43 cargoes it presented to traders although it was believed that Total sold a cargo at a discounted price to the current price of Brent crude.
As at 10:30am on Wednesday morning, Brent crude traded at $79 higher than the $51 crude oil benchmark for the 2018 budget.
Although the oil sector contributes less than 10 percent to the nation’s gross domestic product according to the latest report released by the National Bureau of Statistics, it accounts for more than 70 percent of the nation’s earnings.
Nigeria’s Bonny Light supply to the market is less than usual as a result of a force majeure declared by Shell after the shutdown of the Nembe Creek Trunk Line (NCTL).
Nigeria’s oil export to ‘ramp up’ as Forcados terminal bounces back
Operations at Forcados terminal, one of Nigeria’s main oil export routes, are ramping up after a momentary shutdown at the Trans Forcados Pipeline (TFP).
Forcados terminal exports an average of 262,000 barrels of oil per day (bpd), according to loading schedule.
But as at March 27, there was low injection into the terminal, following a shutdown of the TFP, a Shell Petroleum Development Company (SPDC) spokesman told TheCablePetrobarometer.
“The pipeline (TFP) is operated by Heritage Oil Limited. We only receive crude that is injected from the pipeline…from third party investors, who produce and export through our terminal,” he said.
“When the pipeline was shut, there was slow injection into our terminal. Now that the pipeline has been reopened on April 2, operation and production is ramping up.”
The resumption of activities at Forcados could have significant impact on Nigerian crude oil production.
The terminal was shut for the most part of 2016, following a series of attacks by Niger Delta militants.
According to the Nigerian National Petroleum Corporation (NNPC), about 300,000 bpd of oil were shut in at Forcados terminal alone, following the declaration of the force majeure that year.
Current loading schedule for May, however, shows that combined oil shipments in the country are expected to hover around 1.8 million bpd, though shipment was put at an average of 1.854 million bpd for the month of April.
Crude oil loses $3 in a week — good and bad news for Nigeria
The price of Brent crude — the equivalent Nigeria’s Bonny light — has dropped by $3.31 between Monday and Friday after weeks of sustained rise.
As at mid-day on Monday, Brent crude traded at $67.68, a drop of $2.32 from the $70 it traded for in late January.
By mid-day on Friday, prices had dropped to $64.37 after the supply of West Texas Intermediate from the United States threatened to plunge the market into another supply glut.
In 2016, the Organisation of Petroleum Exporting Countries (OPEC) had to reach an agreement with non-member countries to reduce crude supply to the market to salvage the market.
Although the proposed 2018 budget is not threatened by the current trading price of brent crude, as the crude oil benchmark in the proposed budget is $45, a number of things will be affected by the declining prices.
For one, Nigeria will not be able to build its excess crude account as much as it would love to, since it saves the difference between budget benchmark and actual market price.
While speaking at the Nigeria annual international conference and exhibition organised by the Society of Petroleum Engineers in 2017, Emmanuel Ibe Kachikwu, minister of state for petroleum resources, had said that the cost of producing one barrel of crude oil is $27.
Kachikwu lamented that Nigeria was losing out on possible returns compared to Saudi Arabia, where it costs $9.
Falling oil prices would mean a reduction in Nigeria’s profit margin and inevitably reduced profit.
‘EXTRA COST’ MANAGEMENT
While addressing a press conference in December, Maikanti Baru, group managing director of the Nigerian National Petroleum Corporation (NNPC), said the landing cost of petrol has become N171.
By TheCable’s calculation, it translated to the federal government paying N40.70 on every litre of petrol imported.
In reaction to this, Vice-President Yemi Osinbajo and Kemi Adeosun, minister of finance, said it would only translate to extra cost on the part of NNPC and not subsidy on the part of the federal government.
Declining oil prices would mean a reduction in NNPC’s earning and their ability to cater for the extra cost especially at a time when the NNPC wants to increase petrol importation to combat scarcity.
On the brighter side, the landing cost of petrol, currently at N171 per litre, will certainly drop, and the losses absorbed by NNPC as a result will also drop.