How far can crude oil prices plunge?

We are of the view that crude oil price may fall below US$60 per barrel, if production in countries like Libya, Iraq, Iran and Venezuela rise to normal. Sanctions on Russia and Iran are also there to avoid glut. We have the convictions that unrest in some of the African countries is there to avoid fall of crude oil price below US$50 per barrel  

Brent crude futures fell below US$70 a barrel on Tuesday for the first time since December 2021, after OPEC Plus revised down its demand forecast for this year and 2025.

Brent crude futures were traded at US$69.51 a barrel and US West Texas Intermediate (WTI) crude slipped to US$66.21. On Monday, both benchmarks had risen about 1%.

On Tuesday, the Organization of the Petroleum Exporting Countries (OPEC) in a monthly report said world oil demand will rise by 2.03 million barrels per day (bpd) in 2024, down from last month's forecast for growth of 2.11 million bpd. Until last month, OPEC had kept the forecast unchanged since it was first made in July 2023.

OPEC also cut its 2025 global demand growth estimate to 1.74 million bpd from 1.78 million bpd. Prices slid on the weakening global demand prospects and expectations of oil oversupply.

On Monday, Chinese data showed consumer inflation accelerated in August to its fastest in half a year, though domestic demand remained fragile, and producer price deflation worsened.

Data released on Tuesday showed China's exports grew in August at their fastest in nearly 1-1/2 years, yet imports disappointed with domestic demand depressed.

“If we lose China this market is going to have a problem because OPEC just cannot cut enough to offset the US and Brazilian position, and some of the other reservoirs at work,” said John Kilduff, partner at Again Capital.

 

Turmoil in Nigeria

According to Reuters, Nigerian President Bola Tinubu called on Sunday for a suspension of protests against a rising cost of living crisis, saying this would create an opportunity for dialogue, his first public comments since frustrated citizens took to the streets last week.

Nigeria one of the largest oil producing countries

On July 11, 2024 we posted a blog “US hates and destroys three types of countries”. One of these was countries rich in energy resources. Today we talk about Nigeria, an African country persistently facing armed conflict by and with Boko Haram in North-Eastern Nigeria is resulting in widespread displacements, food insecurity, and many victims of violence. Nigeria was also the largest crude oil exporter of the African continent and also among top 10 oil exporters of the world. The main destination of Nigerian crude oil are: India, Spain, France, United States, and Netherlands. The fastest growing export markets between 2021 and 2022 were: Indonesia, Netherlands, and France.

 Amnesty International has said at least 13 people were killed in clashes with security forces on the first day of protests on Thursday.

Police denied using excessive force and said seven people had died as of Saturday - four from an explosive device during a march in northeast Borno state, two who were hit by a car and another who was shot by a guard when protesters looted a shop.

In a televised broadcast, Tinubu called for an end to violence in several states since the protests started, saying he was always open for dialogue.

"My dear Nigerians, especially our youth, I have heard you loud and clear. I understand the pain and frustration that drive these protests, and I want to assure you that our government is committed to listening and addressing the concerns of our citizens," he said.

Nigerians have been mobilizing online to organize protests against economic hardship and bad governance and have called for a cut in petrol prices and electricity tariffs, among several demands.

Tinubu, in office since May 2023, defended his economic reforms, which have included a partial end to petrol and electricity subsidies and devaluation of the naira, as necessary to reverse years of economic mismanagement.

Government revenues had more than doubled to 9.1 trillion naira (US$5.65 billion) in the first half of this year while 68% of revenue now went to debt servicing, down from 97% before he took office in May last year.

The government was also ramping up spending on infrastructure projects, started a loan scheme for university students and was building thousands of housing units across Nigeria's 36 states, the president said.

"But we must not let violence and destruction tear our nation apart," said Tinubu.

 

 

 

OPEC oil output falls in March

According to Reuters, OPEC oil output declined in March 2024, reflecting lower exports from Iraq and Nigeria against a backdrop of ongoing voluntary supply cuts by some members agreed with the wider OPEC Plus alliance.

OPEC Plus is scheduled to hold an online joint ministerial monitoring committee meeting on April 03 to review the market and members' implementation of output cuts they have already agreed to extend. However, the panel is unlikely to recommend any oil output policy changes.

The Organization of the Petroleum Exporting Countries pumped 26.42 million barrels per day (bpd) in March 2024, down 50,000 bpd from February 2024, based on shipping data and information from industry sources.

Several members of OPEC Plus, which includes OPEC, Russia and other allies, made new cuts in January 2024 to counter economic weakness and increased supply outside the group. Producers agreed last month to keep them in place until the end of June.

An OPEC Plus panel of key ministers meets on Wednesday to review the market and members' production, and is not expected to recommend any policy changes ahead of the group's next full meeting set for June 01, 2024.

The biggest output reductions in March came from Iraq and Nigeria. Iraq promised to lower exports to make up for pumping above its OPEC target, a pledge that would cut shipments by 130,000 bpd from February.

OPEC fell about 190,000 bpd short of its targeted cuts in March, largely because of Iraq, Nigeria and Gabon pumping more than they had aimed for.

Gulf producers Saudi Arabia, Kuwait and the United Arab Emirates each kept output close to their voluntary targets, as did Algeria.

Output in Iran, exempt from quotas, edged lower. Iran is still pumping near a five-year high reached in November after posting one of OPEC's biggest output increases in 2023 despite US sanctions still in place.

There was no significant rise in output from any OPEC country. Libya, also exempt from quotas, pumped an extra 20,000 bpd as the country's output returned to normal after disruption in February.

Reuters aims to track supply to the market and is based on shipping data provided by external sources, LSEG flows data, information from companies that track flows - such as Petro-Logistics and Kpler - and information provided by sources at oil companies, OPEC and consultants.

 

 

 

 

Global oil refining capacity at risk

More than a fifth of global oil refining capacity is at risk of closure, energy consultancy Wood Mackenzie found in analysis published on Thursday, as gasoline margins weaken and the pressure to reduce carbon emissions mounts.

Of 465 refining assets analyzed, the consultancy ranked about 21% of 2023 global refining capacity at some risk of closure.

Europe and China house the greatest number of high-risk sites, putting about 3.9 million barrels per day (bpd) of refining capacity in jeopardy, Wood Mac found, based on its estimate of net cash margins, cost of carbon emissions, ownership, environmental investment and strategic value of refineries.

There are 11 European sites that account for 45% of all high-risk plants.

About 30 European refineries have already shut down since 2009, data from industry body Concawe shows, with nearly 90 still in operation.

This spate of closures has been brought on by competition from newer and more complex plants in the Middle East and Asia as well as the impact of the COVID-19 pandemic.

Gasoline margins are expected to weaken by the end of this decade as demand declines and sanctions on Russia ease while expected carbon taxes should also start to bite.

Operating costs could go up so much that "closure may be the only option", said Wood Mac senior oils and chemicals analyst Emma Fox.

Meanwhile, Nigeria's huge Dangote oil refinery could bring to an end decades-long gasoline trade from Europe to Africa worth US$17 billion a year, heaping pressure on European refineries already at risk of closure from heightened competition.

The Dangote refinery, with capacity of up to 650,000 bpd, began production in January but was not included in Wood Mac's analysis.

The seven high-risk sites in China are small-scale independent refineries. Sometimes called 'teapots', these refineries are subject to more stringent government regulations and compete with larger integrated sites that are typically state-owned and more complex.

OPEC Plus oil quota reform increases dominance of gulf producers

Saudi Arabian Energy Minister Prince Abdulaziz bin Salman earlier this month outlined one of the biggest reforms at OPEC in recent years and presented it as a reward for countries that invest in their oil industry.

The change clears the way for giving larger production quotas to OPEC Gulf members such as Saudi Arabia, the United Arab Emirates and Kuwait at the expense of African nations such as Nigeria and Angola.

Production quotas and baselines, from which production cuts are calculated, have been a sensitive subject within OPEC for decades as most producers want a higher quota so they can earn more from oil exports.

The shake-up is likely to become more extreme in the next few years as Middle Eastern state oil majors ramp up investments while production falls in African nations that have struggled to attract foreign investment.

Gulf producers, the holders of the little spare capacity in the global oil market, have long dominated OPEC.

Their power and influence has already increased in the last 15 years with their rising capacity, while African production has fallen as foreign investments have shrunk.

Unlike Gulf producers, African producers rely heavily on investment from international oil companies. Those companies have shunned Africa in recent years in favour of investment in the US shale patch and in prolific giant oilfields elsewhere such as offshore Brazil and Guyana.

In May, Saudi Arabia, the UAE and Kuwait's share of total OPEC production was over 10% higher than it was 15 years ago at 55%, according to OPEC production figures. Nigeria and Angola's total share over the same period has shrunk by over 3% to below 9%.

For Nigeria, capacity continues to be restricted by operational and security issues, combined with low investment levels, leading to decline, analysts at consultancy Wood Mackenzie said.

New field developments and recent discoveries in Angola will not be enough to stem long term capacity declines, they added.

In contrast, Saudi Arabia and the United Arab Emirates have plans in place to significantly boost their production capacity to 13 million bpd and 5 million bpd, respectively, by 2027 from current levels of about 12 and 4 million.

Fellow Gulf producer Kuwait on June 18 said it would boost its production capacity by 200,000 bpd by 2025 to reach 3 million bpd.

Capacity additions from the three Gulf countries over the 2020-25 period total a combined 1.2 million bpd, double the capacity that Nigeria and Angola are projected to lose over the same period, Reuters calculations find.

The two West African countries have lost nearly a quarter of their production capacity since 2019 as a result of underinvestment and security issues.

At its June 04 meeting, the Organization of the Petroleum Exporting Countries and allies, led by Russia, (OPEC+) overhauled production quotas for the majority of its members.

"In the final analysis what this agreement will achieve for all of us is that those who invest, not this year, but the years to come, 2024 and 2025 and moving forward, there will be a recognition for their investment," Prince Abdulaziz said.

While the majority of members of OPEC Plus got a lower production target, the UAE's was higher.

Richard Bronze, Head of Geopolitics at Energy Aspects, said one of the reasons behind the change was to address OPEC's previous credibility issues when policy changes were not necessarily reflected on oil markets.

"It meant that the actual supply increase or decrease resulting for a quota change would be far smaller than the announced figure, fuelling doubts in the market about the ability of the group to manage market fundamentals," he said.