Items filtered by date: May 2019
For most commentators it was simply a matter of time. The correction would come as the potential effect of the China - US war intensified and investors and the market priced it in. The escalating U.S.-China trade war came into the sharp focus as oil price benchmarks plummeted lastThursday amid increased trade tensions between the two protagonists. The bearish sentiment supported by a dampening of the outlook for global economic and oil demand growth on a day after the EIA reported further increases in US stockpiles of crude by 4.7 million barrels or 1%, to 476.8 million barrels commercial inventory sent oil prices tumbling joining global sell-offs in equities.
The front-month July Brent futures contract and front-month July NYMEX contract traded at below $70/b and $60/b, respectively, for the first time since March. China's commerce ministry said on Thursday that the country would not hold trade talks with the US until the US "adjusts its wrong actions," according to a CNBC report. Oil prices rose early on Friday recouping some of the hefty losses of the previous day when both benchmarks plunged in their worst one-day drop in six months, prices posted the largest weekly decline of 2019 as rising U.S. crude inventories and fears of an economic slowdown have overshadowed signs of tightening global supply brought about by US sanctions on Iran and Venezuela in recent days.
It is easy to understand why Investors are increasingly worried about the state of the global economy and, by extension, the outlook for global oil demand growth for the forseeable future. It is unlikely that the US and China reach any sort of trade agreement any time soon. Trade agreements are notoriously complex, take an immense amount of time and require goodwill. The very best that trade talks will achieve is a ceasefire providing the combatants the space to implement counter measures. A populist Trump has declared open season on China, the trade war is a precusor to a Trumpian strategy to counter the growing influence of a China, technologically, militarily, politically, industrially and diplomatically. The Trump administration’s response to China’s increasing influence does not bode well for this future. It serves to establish a mutual resentment and hostility that will prove to be indelible.
The prevailing mood in washington is that China is the adversary and any notion of working together as allies is over. Mercantilism is the policy de jure in Washington , minimizing imports whilst maximizing exports as part of a government effort to manage trade with unilateral tariffs and quotas. The new catchphrase in Washington is "decoupling" The U.S. has decided it should start to disentangle its economic relationship with China in key sectors in its own national interest and security. Such a policy comes with potentially negative albeit unintended consequence . Most of the U.S.'s allies and partners in Asia, Japan, South Korea, Taiwan and Singapore are far more integrated with China than they are with the U.S., they won't necessarily follow Washington's lead.
The trade war seems here to stay with China seemingly doubling down and playing the long game. Whilst the outlook on the demand side looks bearish, US sanctions on both Iran and Venezuela will create volatility as sentiment has become increasingly skewed by President Trump's tweets and the tension in the Persian Gulf. It now seems inevitable that OPEC will extend their production cut to the end of the year.
the Director of Department of Petroleum Resources (DPR), Mordecai Ladan has announced that Nigeria’s gas reserves increased by 7.3 per cent from 187 trillion cubic
feet (tcf) to 200.79 tcf. Nigeria has long been regarded as primarily a gas producing nation. The official reserves now place Nigeria ahead of Venezuela as having the
6th largest natural gas reserves in the world. The crucial difference is that there has never been any gas exploration in Nigeria and the reserves represent gas
discovered in oil exploration activities or the gas that got in the way of producing the oil. The fiscal regime of the new draft Petroleum Industry Bill seeks to address this
by encouraging and incentivising gas exploration. The Nigerian National Petroleum Corporation (NNPC) has put Nigeria's current undiscovered gas potential at
around 600 trillion Cubic Feet (TCF), which would give the country the 4th largest gas reserves in the world after Russia, Iran and Qatar.
The director said the country’s daily gas production stood at 1.2 billion standard cubic feet (scf) with 41 per cent of the daily production exported while 48 per cent
went to the domestic market, and 11 per cent was being flared. He was further quoted as saying “We have got greater potential if we are to increase the volume of
gas reserves growth. It is very strategic to keep growing the reserves in order to boost export". He also confirmed “We found our gas reserves by accidental exploration.
so a dedicated gas exploration is very important and that’s part of the regulatory initiatives of the DPR".
He went on to urge all the operators to support the Nigerian Government's plan to end gas flaring by supporting the Nigerian Gas Flare Commercialisation
Programme (NGFCP). “The objective of the NGFCP is to eliminate gas flaring through technically and commercially sustainable gas utilisation projects developed by
competent third party investors,” he added. The director said the investors would be invited to participate in a competitive and transparent bid process.
In my opinion the program still lacks a firm financial proposition and is still somewhat of a work in progress. It seeks to rely on a mechanism that will be perfected
through competitive tendering or a bidding process. The Director said: “the commercialisation approach has been considered from legal, technical, economic,
commercial and developmental standpoints, but having seen the initial drafts and broad commercial proposition I remain largely unconvinced or compelled by his
Though the Director goes on to describe it as " a unique and historic opportunity to attract major investment in economically viable gas flare capture projects whilst
permanently addressing a 60 year environmental problem in Nigeria”, the potential yield for investors must be such that it adequately compensates them for their risk
and that currently remains unclear.
Fire has occurred at a spill site along the Trans Forcados Pipeline (TFP) within the Chanomi Creeks in the prolific oil producing Niger Delta. It is unclear what led to the fire outbreak at the time of this report as security sources said investigation was ongoing to determine the cause of the fire. Though inevitably given the immediate past history a militant attack on the TFP is not unlikely, especially off the back of the recent Nembe Creek Trunk Line fire which forced shell and Total to declare force majeure on Bonny and Amenam crude grades.
Heritage Energy Operational Services Limited, operator of the crude pipeline, confirmed the incident to the News Agency of Nigeria on Monday. “It was gathered that the fire occurred due to excessive heat from a pumping machine which was being used to transfer crude oil from the spill site into a barge. “The fire was reported to have destroyed some equipment at the scene.
The security and surveillance of the TFP has been a controversial issue in recent times. There have been allegations of incompetence and collusion in managing the security of the pipeline with the national oil company NNPC, seeking to change the security provider.
The Trans Forcados pipeline remains closed but force majeure has yet to be declared, a Shell spokeswoman said on Tuesday after the fire broke out on Sunday. The shutdown is a blow to the Forcados exports of roughly 240,000 barrels a day. Shell manages the crude export terminal, while Heritage Energy operates the pipeline. Oil producing companies in the Delta use the 200km-long Trans Forcados Pipeline in transporting crude oil to the Forcados Oil Terminal. It remains the single evacuation route for crude produced in the north delta.
However frequent shut downs due to vandalism and oil theft as well as technical issues on the TFP have made a number of producers unable to meet their export targets. The TFP is regarded by most as a critical and strategic national infrastructure asset. It has been a target for militants groups in the past and the last time it was vandalised it remained closed for almost 16 months creating a shut in of over 250,000 bpd
Dr Ibe Kachikwu the Nigerian Minister of State for Petroleum yesterday said in Jeddah, Saudi Arabia, that he hoped the crude oil supply cut agreement between the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members would be extended until the end of 2019. OPEC+, agreed to cut production by 1.2 million barrels per day (bpd) on January 1, 2019, for an initial period of six months. Crude oil benchmarks have increased by over 40% since the decision was taken. OPEC, of which Saudi Arabia is the de facto leader finds itself in a difficult position. The Saudi energy Minister Falih has to find a delicate balance between keeping the oil market well supplied and prices high enough for Riyadh’s budget needs, which equate by sone estimates to over $80 a barrel. There is also the issue of keeping Moscow on board to ensure Russia remains in the OPEC+ pact. Then there is the conundrum of balancing US interests against those of a volatile and divided OPEC.
Falih has said “It is critical that we don’t make hasty decisions – given the conflicting data, the complexity involved, and the evolving situation,” he said, describing the outlook as “quite foggy” due in part to a trade dispute between the United States and China which seem increasingly likely to deteriorate demand for oil. On its part, Saudi Arabia sees no need to boost production quickly now, with oil at around $70 a barrel, as it fears a price crash and a build-up in inventories, Reuters quoted OPEC sources as saying. Suhail al-Mazrouei the Energy Minister of the United Arab Emirate, said oil producers were capable of filling any gap in the oil market and that relaxing supply cuts was not “the right decision”. Mazrouei said the UAE did not want to see a rise in inventories that could lead to a price collapse and that OPEC would act wisely to maintain sustainable market balance. US crude inventories rose unexpectedly last week to their highest since September 2017 There exists a general consensus which seems to be supported by the data that while there is concern about supply disruptions, inventories are rising and the market is adequate supplied with crude. Though Russian Energy Minister Alexander Novak also told reporters that different options were available for the output deal, including a rise in production in the second half of the year.
OPEC’s agreed share of the cuts is 800,000 bpd, but its actual reduction is far larger due to the production losses in Iran and Venezuela. Both are under U.S. sanctions and exempt from the voluntary reductions under the OPEC-led deal. Oil prices edged lower on Friday due to demand fears amid a standoff in Sino-United States trade talks, but both benchmarks ended the week higher on rising concerns over disruptions in Middle East shipments due to United States-Iran political tension.
Nigeria will propose a supplementary budget later this year to boost capital spending and fund a 67 percent increase in the minimum wage as government revenues improve. Additional spending plans will be funded from improved oil revenue as the price of crude has risen to above $70 a barrel compared with $60 that the 2019 budget was predicated. Nigeria will be keen to ensure that OPEC supply cuts remain and that geo-political tension creates a bull market where oil breaks through the $80 barrier. Nigeria have confirmed in the recent past that they stand firm in supporting the Saudis in creating price stability in the oil markets and have recently signed a Memorandum of Understanding with the government in Riyhad.
As Iran-backed Houthi rebels increasingly deploy drones in Yemen’s brutal civil war on attacks on Saudi oil infrastructure the prospect of conflict in the Persian gulf is inevitable. Saudi Arabia’s foreign minister said yesterday that the kingdom wants to avert war in the region but stands ready to respond with “all strength” following the attacks. “Although it has not affected our supplies, such acts of terrorism are deplorable,” Falih said without irony. “They threaten uninterrupted supplies of energy to the world and put a global economy that is already facing headwinds at further risk.” The attacks come as the United States and Iran increase belligerent exchanges which are now almost certainly going to end in conflict. It is improbable that OPEC survive such conflict.
Nigeria's Minister of Finance, Zainab Ahmed, in a act of wanton financial abracadabra and using as justification the metric established in the Fiscal Responsibility Act has said that Nigeria’s debt which currently stands at about N24.3tn is sustainable. She said that the country’s debt, which is about 19% to Gross Domestic Product(GDP), is low if compared to the likes of Ghana, Brazil, South Africa, Egypt and Angola. Quite why she chose this seemingly random group of countries to base her comparison is unclear.
She went on to say, “In the borrowing, we are still at 19 per cent to GDP; our borrowing is still low. Fascinating that the Nigerian finance minister seeks to rely on the one metric that has the least relevance whilst choosing to ignore far more ominous signs of an impending debt trap. Nigeria’s total debt stock as of December 31, 2018, stood at N24.387tn. The figure swelled by 12.25 per cent year on year. Nigeria’s 2019 budget, presented by President Muhammadu Buhari in December and yet to be approved by lawmakers, envisaged the government issuing about 1.65 trillion naira ($4.6 billion) of new debt, half of which would be in foreign currency. The debt in real terms rose by N2.66tn from December 31, 2017, to December 31, 2018.
Director General of the DMO, Patience Oniha, said the funds were borrowed to fund projects, to finance budget deficit and to refinance maturing obligations. Particularly, some foreign debt was used to refinance treasury bills because of the short tenor of the bills, adding that borrowing from abroad had also helped to stabilise the local currency in the last two years.
Aiteo Group on announced a fresh closure of the Nembe Creek trunk line(NCTL). The NCTL is a 97-kilometre, 150,000 barrels of oil per day owned by Aiteo Group, purchased as part of the acquisition of oil bloc OML 29 bought from Shell Petroleum Development Company, (SPDC). It is one of Nigeria’s major oil transportation arteries used to evacuate crude from the Niger Delta to coastal export terminals. Nigeria will lose the capacity to export 150,000 barrels of crude oil per day until it is reopened. This has forced both Shell and Total to declare force majuerre on Bonny Light and Amenam crude grades respectively
Aiteo work closely with the host communities with most of the supply, logistics and security contracts going to local contractors in a concerted effort to avoid costly sabotage and militant attacks on their installations
Nigerian grades however were being offered at steady, relatively firm levels. Qua Iboe was being offered at a relatively high price at a premium of $2.50 to dated Brent. We have learnt that about half of the Nigerian cargoes for June loading remain available.
Nigeria should be well placed to benefit from the exit of Iranian crude from global oil markets and with the impending driving season providing support for Nigeria lighter sweet barrels that provide high yield gasoline cracks to Refiners
Reuters reported a VLCC chartered by Marathon was carrying Nigerian Bonga to the United States. European buyers also were heard to be showing strong interest in Nigerian oil, given the relatively high gasoline cracks and an unusually low North Sea export programme because of maintenance.
There can be no real dissent that the real special relationship is the one that exists between the US and Saudi Arabia and it is the one that poses an existential threat to OPEC. I am inclined to agree with Iran’s oil minister Bijan Namdar Zanganeh as he warns that OPEC is on the verge of collapse because some members are targeting their fellow producers. His remarks came after the Trump administration tightened sanctions on Iran’s oil exports on Thursday. The White House says Saudi Arabia and the UAE have agreed to offset the drop in supplies, even though OPEC has agreed to cap output through June. Saudi Arabia are yet to formally confirm this agreement stating only their ongoing obligation to ensure that the market is adequately supplied with crude and prices remain stable. Iran told the OPEC on Sunday that no member country should be allowed to take over another member's share of oil exports, this in direct response to Saudi Arabia's apparent offer to pump more oil thus increasing the efficiency of US sanctions on Iranian oil. Lest we forget despite OPEC’s nature being that of a cartel, its members are competitors for market share and in the case of Saudi Arabia and Iran pretty much everything else.
That regional rivals Saudi Arabia and Iranian have been able to co-exist within OPEC during recent years of political tension and turbulence within the Middle East has always been a tenuous proposition . Despite effectively facing off in proxy wars in Syria, Yemen and Iraq, OPEC has provided a refuge where their shared goal of obtaining the best price for their crude oil production has created an environment of collaboration albeit as a ‘marriage of convenience ’which up until recently has outweighed the political, religious and historical antipathy they share for each other.
Nigerian state oil company NNPC has announced that 132 companies have participated in the bid for the highly sort after and much prized right to crude oil for product swap tender. NNPC issued the tender for the contract in March after extending the previous contract to June 2019. The Direct Sales Direct Purchase contract
evolved from the various different original offshore processing agreements. These agreements were bought in after the import subsidy scandal which saw numerous
companies implicated in fraudalent practices such as round tripping and outright false declarations of cargoes. Because the Government regulate petrol prices at a
cap below the landing cost, importers were required to reconcile the difference between their actual cost of importing and the regulated price in accordance with
an approved template.
The subsidy scandal cost Nigeria an estimated $6.8bn which is far in excess of any amount needed to repair the nations run down and dilapidated Refineries. But the
real scandal must be that
Nigeria has announced ambitious plans to double its oil production by 2025, targetting 4 million bpd in six years’ . Maikanti Baru, Group Managing Director at the
Nigerian National Petroleum Corporation (NNPC), admits that the target is aggressive but appeared certain when he said last week that Nigeria is committed to
meeting it. The GMD has a penchant for making overly optimistic if not widly unreasonable predictions which only serve to undermine confidence in the National oil company.
Nigeria currently pumps around 2.2 million bpd in both crude oil and condensate. In March Nigeria’s crude oil production stood at 1.733 million bpd, up by 11,000 bpd
on the previous month. Over 10 years ago Nigeria commited to increase oil reserves to 40 billion barrels, that commitment never really looked plausible and has been kicked down the road until 2025 too. Nigeria has not had a bid round for over 10 years during which the passage of the Petroleum Industry Bill, the legislation created to provide certainty to investors has not been passed. It is hard to see how any investment can be made when the legislation that is meant to provide the fiscal and regulatory regime has not be passed.