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Can OPEC+ Maintain Order As Oil Prices Rise?

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After months of neglect from traders, oil became a hot commodity again this month as Brent surged over $65 a barrel and WTI topped $60 for the first time in a year. The rally cast a shadow over OPEC+’s resolve to keep cutting as much production as they are cutting now. Oil had been recovering steadily even before the United States lost some 40 percent of its oil production because of the Arctic cold wave that swept across the country. The Texas deep freeze certainly helped it, but its effect is already dwindling as traders take profits: Brent was down to less than $63 at the time of writing, and WTI had slipped below $60 a barrel. Yet a substantial upside potential remains that could increase internal tensions between OPEC+ members.
For one thing, U.S. demand for oil is recovering. The recovery, Bloomberg reports, started with the vaccination drive that began in December, and since then, refiners have been ramping up fuel production. The last couple of weeks have seen gasoline stocks rise but so has production.
While demand in the world’s top consumer of oil recovers, production is stalling. According to the EIA, U.S. output will remain below 12 million bpd next year as well. This imbalance will turn the United States into a net exporter this year and next, EIA said in its latest Short-Term Energy Outlook. But more importantly for OPEC+, this would push oil prices higher still, tempting barely compliant members to become even less compliant.
There is already discord within the extended oil cartel. The last time OPEC+ made a decision on production, it had to make a compromise decision to take into account the interests of those—like Russia—that insisted on some rollback of the deepest production cuts. And now, Saudi Arabia has said it would suspend its voluntary unilateral additional cuts that amounted to 1 million bpd and that Riyadh effected in its whatever-it-takes quest for higher prices.
That’s the clearest signal yet that OPEC’s de facto leader and biggest producer is becoming more optimistic about prices. Per the Wall Street Journal report that broke the news, however, the decision may yet be reversed if the price situation changes. Ironically, the very news that Saudi Arabia will add another million barrels daily to global supply is likely to have a negative effect on prices once the Texas deep freeze frenzy fizzles out.
But while Saudi Arabia continues to be ready to do whatever it takes, Russia sees the oil market as already rebalanced. Deputy Prime Minister Alexander Novak said as much last week as quoted by Russian media.
“We’ve seen low volatility in the past few months. This means the market is balanced and the prices we are seeing today are in line with the market situation,” Novak told TV channel Rossiya 1. Novak added that while last spring oil demand was 20-25 percent lower than its normal level at this time of year, by the end of 2020, the decline had shrunk to 8-9 percent. And Russia remains one of the barely compliant nations in the OPEC+ agreement. In fact, like Iraq, Russia has been producing over its quota.
Speaking of Iraq, the country reported an increase in oil exports for the first two weeks of February despite its attempt to reduce production of crude oil further to compensate for its overproduction last year. For the full month, according to Bloomberg, Iraq may exceed its self-imposed cap of 3.6 million bpd and even its OPEC+ cap of 3.85 million bpd.
And then there is Iran, which is already boosting production as it is exempt from the OPEC+ cuts and has big plans for its return on the international oil stage after U.S. sanctions are lifted. This has yet to happen, after Washington tied the removal of sanctions on Iran’s suspension of uranium enrichment activities.
In what could be seen as a gesture of goodwill, the U.S. earlier this month said it had rescinded a declaration by the Trump administration that all UN sanctions against Iran had snapped back. The declaration was void because it used provisions from the 2015 nuclear deal with Iran that the U.S. had left before making the declaration. In any case, Iran has reasons for optimism that it will be sanction-free soon and ready to pump more.
The discord between production cut hawks and production growth doves within OPEC+ will only deepen with the latest bullish news on oil. It already led Saudi Arabia’s oil minister to warn against complacency.
“I must warn once again against complacency,” Prince Abdulaziz bin Salman said earlier this week as quoted by Bloomberg. “The uncertainty is very high and we have to be extremely cautious. The scars from the events last year should teach us caution.”
Uncertainty indeed remains high, and then there is the threat of U.S. producers giving in to the temptation of WTI at over $60. For now, they have been resisting it, in all fairness, perhaps displaying the same caution bin Salman talked about this week. But at some point, the temptation may become irresistible, and what for OPEC is a nightmare scenario may happen again: U.S. producers ramping up output thanks to OPEC+ efforts to keep prices high enough to make it economical.
For now, there is no sign that OPEC+ will depart from its current policy of sticking with 7.2 million bpd in cuts until April. But, again, as Saudi Arabia’s top oilman said, “Those who are trying to predict the next move of OPEC+, to those I say, don’t try to predict the unpredictable.”

 

By:  Irina Slav

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Partners Execute Shareholder Agreement For Brass Products Terminal

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The Nigerian National Petroleum Corporation, (NNPC), along with their partner, the Nigerian Content Development & Monitoring Board, NCDMB, and Zed Energy have executed a shareholders’ agreement for the establishment of a 50 million litre Petroleum Products Terminal in Brass, Bayelsa State.
The N10.5 billion Brass Petroleum Products Terminal project is expected to deliver an automated 50 million litre depot with two-way product jetty, automated loading bay, and 6 automated tanks for storage of 30 million litres of Premium Motor Spirit (PMS)and 20 million litres of Automotive Gas Oil (AGO) and Dual Purpose Kerosene (DPK).
While speaking at the signing ceremony, the Minister of State for Petroleum Resources, Chief Timipre Sylva commended President Muhammadu Buhari for his giant strides in the Niger Delta which is making a huge impact on the people of the area.
“I make bold to say today without any fear of contradiction that no President has impacted the people of the Niger Delta like President Muhammadu Buhari. Aside from what we are witnessing today, remember there is also the Brass Fertilizer & Petrochemical Company, the Oloibiri Oil and Gas Museum and the Oil & Gas Park in Ogbia, all under Mr. President,” the Minister stated.
Sylva added that the establishment of the Terminal further demonstrates Mr. President’s commitment to the enhancement of the livelihood of the Niger Delta people particularly, the riverine communities in Bayelsa State where people purchase products at exorbitant prices due to logistics challenges associated with transporting products to that area.
Speaking shortly after signing the agreement, the Group Managing Director of the NNPC, Mallam Mele Kyari said the Corporation was proud to be part of the project which aside ensuring products availability in all nooks and crannies of the Niger Delta, will also guarantee the nation’s energy security and generate employment.
“This Terminal will create 1,000 direct jobs during the construction phase, and over 5,000 indirect jobs during its operation. Considering the potential for employment when completed, this will definitely reduce youth restiveness in the Niger Delta area and will also address the problem of illegal refining in the area,” Kyari stated.
In his remarks, the Executive Secretary of NCDMB, Simbi Wabote stated that this milestone was as a result of strong interagency collaboration and public-private sector partnership.
“The NCDMB will continue to drive such partnerships across the industry to bring development in Nigeria,” he noted.
Earlier, the Coordinator of the Project and Group General Manager, National Petroleum Investment Management Services (NAPIMS), Mr. Bala Wunti stated that the project would enhance the economics of marine petroleum products distribution.

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Senate Hails NNPC’s Drive Towards Profitability

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The senate has commended the Nigerian National Petroleum Corporation (NNPC) for its efforts towards attaining profitability and stamping out corruption from its system.
Chairman, Senate Committee on Anti-corruption and Financial Crimes, Suleiman Abdu Kwari, gave the commendation at a hearing which was held at the national assembly complex, Abuja.
Kwari said it was heart-warming to learn that the NNPC was making great strides towards profitability and urged the corporation to sustain the gains recorded so far for the good of the country.
In his presentation at the hearing, Mele Kyari, the group managing director of NNPC, said the corporation was championing the fight against corruption in the oil and gas industry by placing measures to curb incidences of corruption across its various business portfolios and by enlisting as a partner company of the Extractive Industries Transparency Initiative (EITI).
He also said that the corporation has reported several incidences of infractions such as products diversion and crude oil theft to the police, EFCC and other investigating agencies of the federal government to stem corruption within the oil and gas industry.
In an effort to clampdown on fuel smuggling, the ministry of petroleum resources launched the operation white project in October 2019 to monitor and track the movement of petroleum products in the country.
Also in February 2021, the Department of Petroleum Resources (DPR) launched the downstream remote monitoring system (DRMS) to track the movement of petroleum products from depots to retail outlets.
“We have created an anti-corruption desk in NNPC that engages the Economic and Financial Crimes Commission (EFCC) and other anti-corruption agencies on a regular basis,” NNPC GMD said.
“The desk ensures that in all our operations, every staff complies to the code of conduct procedures with consequence management.
“We have established a regulatory compliant governance charter and transparency policy; this is a mark of our compliance to the anti-corruption strategy.
“For the first time in 43 years, NNPC, as a part of the evolving culture of transparency and accountability, published its Audited Financial Statements (AFS) for 2018 and 2019. We are going to publish that of 2020.
“The AFS is the only document that tells how a company does its transaction. We are happy that by the time the 2020 AFS will be published, Nigerians will see the dividends of our accountability.”

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Chevron Spends $10bn On Nigerian Suppliers, Service Providers

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Chairman/Managing Director, Chevron Nigeria Limited (CNL), Rick Kennedy, said the company has in the last 10 years spent an estimated annual average of $1 billion on Nigerian suppliers and service providers in line with its commitment to Nigerian Content Development.
Highlighting the opportunities and new approaches to the future of hydrocarbons at the ongoing 2021 NIPS in Abuja, Kennedy stressed the need for robust policies and regulations to address and remedy existing challenges in the oil and gas industry; digital technology/innovations; cost efficiency initiatives; sustained social investments as well as continued support for Nigerian Content Development.
Kennedy, who was represented by Monday Ovuede, director, NNPC/CNL Joint Venture, identified opportunities in lowering carbon emissions and harnessing Nigeria’s gas resources as key enablers in complementing the new approaches to future of hydrocarbons in the Nigerian oil and gas industry in the post COVID-19 era.
According to him, the global community has continued to scale up the collaboration towards lower carbon emissions, adding that Chevron supports global efforts to reduce carbon emissions and is actively investing in operations to improve environmental performance while also working with industry to develop new innovative technology and best practices to achieve these objectives.
He emphasised that CNL’s gas strategy is to end routine gas flaring and build a profitable gas business through a portfolio of projects, and stated that in Nigeria, CNL, with its joint venture (JV) partners, the Nigerian National Petroleum Corporation (NNPC), has progressively reduced routine gas flaring by over 95% in the past 10 years and remained ahead in terms of maximising supply of on-spec gas into the Nigerian domestic market.
He also highlighted the NNPC/CNL’s Gas Sales and Aggregation Agreements with Egbin Power Plc, Dangote Fertilizer Limited, and Olorunsogo Generation Company Limited, while mentioning the positive impact of the West African Gas Pipeline (WAGP) through which Nigeria supplies gas to countries in the West African sub-region – specifically, Ghana, Togo, and Benin – thus, helping to boost economic development in West Africa.
Kennedy also noted that Chevron has joined other energy companies supporting the Methane Guiding Principles to reduce methane emissions from natural gas exploration and production operations through digital innovation and deployment of best practices, which include designing, constructing, and operating its facilities in a manner to reduce emissions from its operations.

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