Top Oil Producers To Consider Fresh Cuts As Trade War Hits Prices

Indigenous Firms Plan To Increase Oil Output

 

Top oil producers will consider fresh output cuts at a meeting this week, but analysts are doubtful they will succeed in bolstering crude prices dented by the US-China trade war.

The OPEC petroleum exporters’ cartel and key non-OPEC members want to halt a slide in prices that has continued despite previous production cuts and US sanctions that have squeezed supply from Iran and Venezuela.

Analysts say the OPEC+ group’s Joint Ministerial Monitoring Committee, which monitors a supply cut deal reached last year, has limited options when it meets in Abu Dhabi on Thursday.

UAE Energy Minister Suheil al-Mazrouei said on Sunday the group would do “whatever necessary” to rebalance the crude market, but admitted that the issue was not entirely in the hands of the world’s top producers.

Speaking at a press conference in Abu Dhabi ahead of the World Energy Congress, to start Monday, he said the oil market is no longer governed by supply and demand but is being influenced more by US-China trade tensions and geopolitical factors.

The minister said that although further cuts will be considered at Thursday’s meeting, they may not be the best way to boost declining prices.

“Anything that the group sees that will balance the market, we are committed to discuss it and hopefully go and do whatever necessary,” he said.

“But I wouldn’t suggest to jump to cuts every time that we have an issue on trade tensions.”

While cuts could help prices, they could also mean producers lose further market share, analysts say.

“OPEC has traditionally resorted to production cuts in order to shore up the prices,” said M. R. Raghu, head of research at Kuwait Financial Centre (Markaz).

“However, this has come at the cost of reduction in OPEC’s global crude market share from a peak of 35 percent in 2012 to 30 percent as of July 2019,” he told AFP.

The 24-nation OPEC+ group, dominated by the cartel’s kingpin Saudi Arabia and non-OPEC production giant Russia, agreed to reduce output in December 2018.

That came as a faltering global economy and a boom in US shale oil threatened to create a global glut in supply.

Previous supply cuts have mostly succeeded in bolstering prices.

But this time, the market has continued to slide — even after OPEC+ agreed in June to extend by nine months an earlier deal slashing output by 1.2 million barrels per day (bpd).

Trade war

The new factor is the trade dispute between the world’s two biggest economies, whose tit-for-tat tariffs have created fears of a global recession that will undermine demand for oil.

Saudi economist Fadhl al-Bouenain said the oil market has become “highly sensitive to the US-China trade war”.

“What is happening to oil prices is outside the control of OPEC and certainly stronger than its capability,” Bouenain told AFP.

“Accordingly, I think OPEC+ will not resort to new production cuts” because that would further blunt the group’s already shrunken market share, he said.

European benchmark Brent was selling at $61.54 per barrel Friday, in contrast with more than $75 this time last year but up from around $50 at the end of December 2018.

The deliberations also coincide with stymied production from Iran and Venezuela and slower growth in US output, meaning that supplies are not excessively high.

“US shale output growth does not have the same momentum as in previous cycles, and OPEC production is at a 15-year low, having fallen by 2.7 million barrels per day over the past nine months,” Standard Chartered said in a commentary last month.

“We think that the oil policy options for key producers are limited, for the moment,” the investment bank said.

No decisions will be taken at Thursday’s meeting, but it should produce recommendations ahead of an OPEC+ ministerial meeting in Vienna in December.

Rapidan Energy Group said the alliance might need to cut output by an additional one million bpd to stabilise the market.

But the problem will be deciding which member countries will shoulder the burden of any new cuts.

Saudi Arabia, which is the de facto leader of OPEC and pumps about a third of the cartel’s oil, took on more than its fair share last time around.

It has also undergone a major shake-up in its oil sector, announcing the replacement of energy minister Khalid al-Falih with Prince Abdulaziz bin Salman in the early hours of Sunday morning ahead of a much-anticipated stock listing of state oil giant Aramco.

Bouenain said he believes that Riyadh is likely to resist taking on further cuts, given the impact on the kingdom’s revenues.

Raghu said that “without a favourable resolution to the dispute, OPEC’s production cuts will not result in a sizeable uptick of oil prices.”

AFP

Trump Thanks Saudi Arabia For Lower Oil Prices

n this file photo taken on May 20, 2017, US President Donald Trump (R) and Saudi Deputy Crown Prince Mohammad bin Salman al-Saud take part in a bilateral meeting in Riyadh. Trump on November 21, 2018, thanked Saudi Arabia for lower oil prices — a day after pledging the US would remain a “steadfast partner” of the kingdom despite the murder of a prominent journalist. “Oil prices getting lower.  MANDEL NGAN / AFP

US President Donald Trump thanked Saudi Arabia on Wednesday for lower oil prices — a day after pledging the US would remain a “steadfast partner” of the kingdom despite the murder of a dissident journalist.

“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82,” he tweeted.

“Thank you to Saudi Arabia, but let’s go lower!”

The remarks came a day after Trump linked his decision to continue backing the petro-state — despite Crown Prince Mohammed bin Salman’s alleged involvement Jamal Khashoggi’s death — to his desire to keep oil prices low.

“If we broke with them, I think your oil prices would go through the roof. I’ve kept them down,” he told reporters at the White House.

“They’ve helped me keep them down. Right now we have low oil prices, or relatively.”

Oil recovered slightly on Wednesday after slumping more than six percent, with traders fretting that Saudi Arabia may not deliver on planned production cuts.

Trump’s support for Riyadh has been taken by some observers as a move to prevent them from lowering output at the December meeting of OPEC and non-OPEC members.

The gruesome murder of Khashoggi, a US resident and Washington Post columnist who vanished after being lured into the Saudi consulate in Istanbul on October 2, has hugely embarrassed Washington.

The killing torpedoed a PR campaign led by the crown prince to show that the conservative Islamic state has embarked on a new reformist path.

“The United States intends to remain a steadfast partner of Saudi Arabia to ensure the interests of our country, Israel and all other partners in the region,” Trump said in an earlier statement on Tuesday.

AFP

Oil Price Jumps To Four-Year High, Nears $81

Brent oil soared Monday close to $81, reaching the highest level since November 2014 after OPEC and other global producers snubbed pressure from US President Donald Trump to dampen prices.

At 0840 GMT, Brent North Sea crude for delivery in November soared to a peak of $80.94 per barrel. That was the highest level since November 12, 2014.

The benchmark Brent contract later stood at $80.85, up $2.05 from Friday’s close.

New York’s main contract, West Texas Intermediate (WTI) or light sweet crude for delivery in November, added $1.52 to $72.30 after earlier striking a two-month pinnacle.

Oil leaped after the world’s top producers decided to maintain output during a meeting in Algeria at the weekend.

A committee comprised of the Organization of the Petroleum Exporting Countries (OPEC) cartel and non-OPEC producers said it was satisfied with the current market outlook, which represented “an overall healthy balance between supply and demand”.

However, Saudi Arabia’s influential oil minister Khalid al-Falih left the way open to a future production hike, as supplies tighten due to the US imposing sanctions on Iranian oil from November this year.

“Saudi Arabia and Russia confirmed that they not raising output — and this is bad news for President Trump as he wants a lower oil price that is good for business,” said CMC Markets David Madden.

“Last week, Mr. Trump verbally attacked OPEC and some traders thought we might see an increase in supply from the United States’ Middle Eastern allies.

“The Algiers meeting did not bring about an increase in output — and that is fuelling the rally.

“Fears that supply will be hit when the US sanctions on Iran kick in come November are pushing up oil prices.”

OPEC in December 2016 concluded an agreement with non-member states — including Russia — to reduce output in order to arrest sliding prices.

Sunday’s meeting in Algiers brought together OPEC oil ministers and non-OPEC signatories to the 2016 agreement, as they seek to extend their cooperation.

Trump has repeatedly called for a hike in production by countries other than Iran to reduce oil prices.

AFP

National Economic Council Approves FG’s Strategies To End Recession

Adeosun, GovernorsThe National Economic Council has approved President Muhammadu Buhari’s strategies to pull the economy out of recession.

This was done during its meeting in Abuja, chaired by the Vice President, Professor Yemi Osinbajo.

The council of ministers and governors debriefed the Finance Minister, Mrs. Kemi Adeosun and the Minister of Budget and National Planning, Mr Udoma Udo Udoma as well as the CBN Governor, Godwin Emefiele on the strategies to take the country out of the woods.

Briefing State House correspondents after the closed-door meeting, the Deputy Governor of Ogun State, Yetunde Onanuga, said that the Central Bank would henceforth adopt best options to manage the situation.

Other areas of urgent intervention were also agreed upon by the council to immediately inject larger funds into the economy, including meaningful diversification and more stringent importation cuts.

Intervention of affordable housing was also among urgent issues discussed, which the council said a target of one billion naira fund has been set up to create a blended pool of long term funds for housing development finance and mortgage provision aimed at delivering 500,000 housing units annually.

The council commended members of the National Economic Team for their diligence and hard work.

The council’s declaration comes barely 24 hours after the Deputy Senate President, Ike Ekweremadu, asked President Muhammadu Buhari to reshuffle his cabinet and redeploy the Minister of Finance and the Minister of Budget and National Planning from their present ministries.

Senate-Ike-Ekweremadu
Deputy Senate President, Ike Ekweremadu

As the Senate began debate on the state of the economy on Wednesday, Ekweremadu said that he was not impressed with the performance of the two ministers and believes they would perform better in other ministries.

Nigeria’s economy had slipped into recession after a report of the National Bureau of Statistics showed that the nation’s GDP contracted by 2.06% in the second quarter of 2016.

The report came just as militant activities have resurged in the Niger Delta, causing the revenue of the nation which comes largely from crude oil sales to drop.

The price of crude, which had dropped in the international market, already taking its toll on the nation’s economy was compounded by the attacks on oil installations in the Niger Delta.

Negative Growth Since 2012
The Minister of Finance, Mrs Kemi Adeosun, had recently said that the country had been in negative growth since 2012 with the hope that it would avoid recession but since the reality of the recession has dawned on the nation, the government was prepared to address it.

Kemi-Adeosun-Minister-of-Finance-Nigeria-on-Economy
Minister of Finance, Mrs. Kemi Adeosun

She said that the tactical plan of the Nigerian government to address its economic challenges would not change in spite of the official confirmation that the country had gone into a recession.

Mrs Adeosun was the guest of Channels TV’s breakfast programme, Sunrise Daily on Tuesday, September 20, where she explained that the solution to Nigeria’s problem remained the same from years past.

“Our plans haven’t changed. We need to stimulate the economy and we are going to do so largely by redirecting expenditure from recurrent into capital because we believe that capital expenditure will create jobs and create more productivity in the economy in the long run and help us to diversify,” she said.

She maintained that getting out of recession remains dependent on how productive the economy becomes as well as how well it can create jobs. “we’ve got to invest in our capital infrastructure,” she said.

Set To Inject Funds
The Minister had few days earlier said that the government was set to inject an additional 350 billion Naira ($1.1 billion) into the economy and raise $1 billion from Euro-bonds by mid-December to ease the recession.

She had told reporters in Abuja that the additional funding, on top of the initial 420 billion Naira released in May, was primarily for capital expenditure projects that would also involve support from local banks and transaction partners.

“We are raising money. As you know the Euro-bond capital raise is on.

Udoma-Udoma
Minister of Budget and National Planning, Mr Udoma Udo Udoma

“We are about to appoint advisers so we we will be raising additional $1 billion.

“Two weeks ago we approved the external borrowing plan and that was very important,” the Minister said.

While local investors feel neglected despite being in greater majority than the foreign investors for which the government is looking to attract back to Nigeria, the Minister for Budget, Senator Udoma Udoma, had reassuring words.

“We are determined to make it easier to do business in Nigeria and we believe that, working together with the private sector, we must surely transform this economy,” he told businessmen during a quarterly business briefing at the Presidential Villa with private sector stakeholders.

Ending Recession: Our Strategy Has Not Changed – Adeosun

Kemi adeosun, recession, Finance Minister, CBNThe Minister of Finance, Mrs Kemi Adeosun, says the tactical plan of the Nigerian government to address its economic challenges has not changed in spite of the official confirmation that the country had gone into a recession.

Mrs Adeosun was the guest of Channels TV’s breakfast programme, Sunrise Daily on Tuesday, September 20, where the conversation centered on the state of the Nigerian economy.

She recalled that the country had been in negative growth since 2012 with the hope that it would avoid recession but since the reality of the recession has dawned on the nation, the government is prepared to address it.

“Our plans haven’t changed. We need to stimulate the economy and we are going to do so largely by redirecting expenditure from recurrent into capital because we believe that capital expenditure will create jobs and create more productivity in the economy in the long run and help us to diversify,” she said.

The Finance Minister noted that the solution to Nigeria’s problem has been the same and getting out of recession remains dependent on how productive the economy becomes as well as how well it can create jobs.

“To do so, we’ve got to invest in our capital infrastructure,” she maintained.

Emergency Powers

There have been talks about the executive arm of government sending a bill to the legislature seeking executive powers for the President to help drag the economy out of recession and Mrs Adeosun explained the rationale behind the bill.

She said: “There are a number of bottlenecks that we have already identified and which we think that given where we are, it might be worthy looking at how to unlock them.

“For example, we have pumped a fairly large amount of capital into the economy through various ministries, departments and agencies, some of whom have deployed it very quickly and are ready for more and we are about to release another tranche of 350 billion.

“But there are some ministries that have been slowed down by the procurement processes. It is about transparency versus speed. We want open tenders because that gives us the best price and that is what also gives opportunities to Nigerians to bid for and to get government contracts.

“If it is taking four to 16 weeks to get through the bureaucracy, at this point in time we think we can’t afford those delays. So we need to say ‘look, procurement laws are made for usual times and these are unusual times, can we look at relaxing some of the condition?’

“Similarly there is a transaction we are working on at the moment which is a very pivotal transaction with General Electric – they want to run freight on our own rail system which will create huge number of jobs across the country.

“But it’s bogged down in rules that say you’ve got to do this and that you’ve got to advertise and keep it up for a while. We don’t have that time.

“So there are some areas where I think it would be useful to have some legislative amendments.”

The Worst Is Over

The Minister also agreed with an earlier statement by the Governor of the Central Bank of Nigeria, Mr Godwin Emefiele that the worst of the recession was over.

She explained that the level of problems that the economy has had to deal with  – ranging from the drop in oil price to the Niger Delta crisis that led to drop in oil production quantity are indeed the worst that could only have been imagined.

“So our worst case scenario in terms of our planning has already happened and I think that is probably what he was trying to say.

“From now on, the only way really is up. The only way is recovery, the only way is forward,” she assured Nigerians.

Low Interest Rates

As Nigerians await the outcome of the Central Bank’s Monetary Policy Committee (MPC) meeting, the Minister of Finance hoped that the committee would lower key interest rates.

Mrs Adeosun believes that this will help stimulate the economy, especially as the government plans to boost the economy without increasing debt servicing costs.

At the last committee meeting in July, the benchmark Monetary Policy Rate was raised from 12 percent, to 14 percent, while the Cash Reserve Ratio and Liquidity Ratio were both retained, at 22.50 per cent and 30 per cent each.

The CBN is also expected to give an update on new flexible forex market.

FG To Diversify Nigeria’s Revenue Base

Kemi AdeosunFinance Minister, Kemi Adeosun says the main economic strategy of the Buhari administration is to reset the Nigerian economy to have a more diverse revenue base and to cut wastage in government’s spending.

She was the guest of Channels Television’s Sunrise Daily on Thursday where she provided answers to several question bordering on the management of the country’s economy and plans to solve its current economic challenges.

She reaffirmed an earlier statement by President Muhammadu Buhari that the government inherited an empty treasury, in addition to a high debt profile and these have made things difficult.

She said that the previous administrations in Nigeria failed to build savings while the country enjoyed massive revenue from high price of oil globally and this put the country in a tight condition when the oil price fell.

She noted that Nigeria’s sole dependence on oil made the impact much tougher on the economy and the citizens.

“What we are now trying to do is reset the economy so that we never end up in this situation again; and how do we do that? We have to have a more diversified economy, a more diversified revenue base.

“If you look at oil, its only 13% of our GDP but it represent 70% of government’s revenue which means if anything happens to oil, it affects everybody.

“The question we are trying to now resolve is; the remaining 87% of GDP, why is it contributing so little to government’s revenue? If we are able to have those other revenues which are much more stable, predictable and less volatile, then if the oil price goes down, we’ll be able to maintain some level of stability.”

Another area the government is looking at is to ensure that when monies are spent, they are spent effectively.

“We have looked at what government has been spending money on; only 10% was spent on capital while 90% was spent on recurrent items like salaries, traveling, training and so on and those things don’t grow the economy, capital (expenditure) is what grows your economy.

“This budget that is being finalized has a 30% commitment to capital and we have said we want to maintain that commitment,” she said.

She mentioned power generation, roads, rail, housing as some of the areas where the capital expenditure would cover as these are the core areas that create jobs and empower the citizens to develop the economy.

She also spoke about efforts to encourage governors to replicate these measures in their states.

Nigeria’s Forex Reserve Rises By $40 million       

Forex ReservesNigeria’s forex reserve rose by 40 million dollars in March on a 30-day moving average basis to 27.9 billion dollars.

This is on the back of oil price climb to 40 dollars a barrel.

In an analyst note released on Tuesday by the investment bank FBN Quest, the modest increase in the reserve was also attributed to the government’s plugging of leakages in revenue and finances.

During the month under review, Central Bank’s foreign currency sales remain unchanged at 200 million per week to commercial banks while importers were also surveyed to have cut back on orders, adopting a realistic position on forex supply at the Central Bank.

Fuel Scarcity Hits Nigerian States

Fuel ScarcityQueues for the purchase of fuel have continued to emerge at various fuel stations across Nigeria, with intending buyers wasting hours at different fuel stations.

Many commuters spent many hours waiting on Monday. Some five hours others over eight hours.

When Channels Television crew visited some petrol stations across the oil rich nation, the queues continued to mount and some operators, who spoke off-camera, could not explain the cause of the fuel scarcity.

An attendant at a filling station in Bariga, Lagos, told Channels Television’s crew that the station had not sold petrol for the past three days, as tanks were dry and queues were mounting because they could not load products from the depot after exhausting the ones they had in their reserve.

Some of the petrol stations have increased their pump price from the official price of 87 Naira per litre to 100 Naira and above.

This move has attributed to higher cost of the product at the Nigerian National Petroleum Corporation’s depot.

The fuel scarcity has begun to inflict pain on motorists, and commuters who are sometimes left stranded at major bus stops and motor parks, while fares have been increased to some destinations. In most cases, fare has doubled.

In the meantime, the NNPC has asked members of the public not to engage in panic buying, as the corporation was working with all downstream industry stakeholders to eliminate the noticeable artificially induced fuel queues in some fuel stations.

On February 27, the NNPC said it added 688 million litres of petrol in the market to cushion the artificial scarcity witnessed in some states.

The corporation’s spokesman, Mr Ohi Alegbe, in a statement, said panic buying might be the reason for the artificial fuel scarcity.

Petrol Price Reduction: Transport Workers In Abia To Reduce Fare

PetrolThe Chairman of Abia State Chapter of National Union of Road Transport Workers, Sunny Nwakodo, has said that there is the likelihood to reduce the prices of transport in the state.

This is in line with the decision of the Federal Government to reduce the pump price of petrol from 97 naira to 87 naira per litre.

According to him, if all the petrol stations in the state abide by this new pump price, commuters would have a cause to smile as the union would do all within its ability to bring down fare.

While some of the petrol stations in the state, visited by Channels Television, have started selling at the new price, others have not changed their prices.

According to them, their inability to sell was because they were waiting for orders from the management to revert to the new price.

Some of them also claimed that they bought the fuel at the former price and the turn of event might affect their profit margin.

This has led to the NNPC mega Station being besieged with several vehicles.

Although many commuters expressed the view that the Federal Government’s decision to reduce petrol pump price was to draw attention for campaign purposes, a large number of them also think otherwise.

Some of the consumers who spoke to us said that the action taken by the government to reduce petrol pump price was commendable.

Many were pleased to buy their petrol at the new price of 87 naira per litre.

New Petrol Price Will Not Immediately Affect Common Man – Nweze

petrolA Professor at the Pan Atlantic University, Austin Nweze, believes that the Nigerian Government’s reduction of the pump price of petrol is a welcome development considering it came without a fight from Nigerians.

He, however, added that how long this would last remains something to ponder on as there are several factors that determine the prices of petroleum products.

Speaking on Sunrise Daily, he noted that the reduction of the pump price of petrol was a consequence of global drop in the price of crude oil, and wondered if the pump price in Nigeria would be raised again when global crude price goes up.

While sharing the view that it was not yet time to celebrate a permanent reduction, he also noted that such reduction would not affect majority of Nigerians as commuters would still be paying the same amount they pay for transportation.

He admitted, although, that vehicle owners who buy petrol daily would immediately start to benefit.

Explaining the dynamics of the oil market, Nweze opined that this was a good opportunity for the Nigerian Government to completely remove subsidy and allow filling stations to sell at different prices.

To validate his suggestion, he stated that many towns in the South-Eastern part of the country had been buying petrol at different prices different from the former price of 97 naira per litre. Therefore a deregulation would not be strange.

He also noted that this could help develop local refineries and also encourage local entrepreneurs to invest in the sector rather the Nigerian economy being in the hands of foreigners.

Professor Nweze further emphasized the need to diversify the Nigerian economy.

Austin Nweze, who is also the governorship candidate of the Social Democratic Party (SDP) in Ebonyi State, spoke briefly about his ambition and his chances of clinching the governorship seat in Ebonyi State in 2015.

Life Beyond Oil: Fashola Advocates Reforms That Eliminate Corruption

The Governor of Lagos State, Babatunde Fashola is concerned about the country’s response to the abundance of oil.

At the 30th anniversary lecture of the law firm of George Etomi and Partners, Governor Fashola spoke on the topic “Life Without Oil”. The Governor believes that such a future was not reasonably foreseeable.

He wants more focus on how the country can develop herself and her people away from oil.

“The question that seems more appropriate is whether a better life with oil is possible. The answer I will offer is an emphatic yes. The road to that better life is not too difficult. It requires us to eliminate corruption at all levels of the oil industry. It requires us to reform NNPC especially in terms of personnel and replace them with more committed professionals.

“The road to that better life requires us to understand that although oil is currently selling at over $100 per barrel, it has not always been so and will not remain so,” he said.

Governor Fashola also referred to statement credited to Senator Chris Anyanwu a few days earlier on the floor of the Senate, during the consideration of the 2014 Budget, that the Navy does not have enough money to fuel her ships, as well as the complaints of the Inspector-General of Police that he did not have enough money for his men. He called on Nigerians not to keep quiet about the need for the country to move in the right direction.

CBN leaves interest rate at 12 percent, moves to support naira

The Central Bank of Nigeria (CBN) left its benchmark interest rate on hold at 12 percent on Tuesday as expected but took measures to tighten liquidity to support the weakening local naira currency.

The CBN’s Monetary Policy Committee (MPC) chose to raise banks’ cash reserve requirement to 12 percent from 8 percent and reduce net open foreign exchange positions to one percent from three percent to support the naira.

Eleven analysts polled by Reuters last week had expected the MPC to keep its benchmark rate unchanged for a fifth meeting running.

The naira has been hit by a fall in the price of oil, the country’s main export, and global risk aversion and has weakened by almost 3 percent against the dollar since April. The naira closed at N160.7 against the U.S. dollar on Tuesday, outside the CBN’s N150-N160 target trading band.
Currency weakness is aggravating inflation as the country imports 80 percent of what it consumes.

Consumer inflation rose to 12.9 percent year-on-year in June, up from 12.7 percent in May. The CBN expects it to peak around 14 percent later this year.

The CBN Governor Lamido Sanusi said on Tuesday there were serious risks to growth in Nigeria due to weaker global economic growth, lower oil output, a worsening security environment and high government spending.

Mr Sanusi also said Nigeria was unprepared for a potential oil price slump because government was spending the country’s savings, which are stored in the excess crude account.

Nigeria’s economy grew 6.17 percent in the first quarter this year, down from 7.68 percent in the fourth quarter last year. The economy is projected to grow at 6.5 percent this year, down from 7.4 percent in 2011.

The CBN has kept rates on hold since November, after six successive hikes last year, including a 275 basis point rise in October to 12 percent, to ward off speculation on the naira. The naira fell 4.5 percent against the dollar last year.

REUTERS