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Tag: OPEC

  • OPEC losing market control on oversupply

    OPEC losing market control on oversupply

    The refusal of the Organisation of Petroleum Exporting Countries (OPEC) to impose production limits on its members has dimished clout. and an evolving global marketplace signal diminished its clout for the oil cartel.

    According to Africa-ME report, OPEC ministers’ failure to agree on production limits to bolster oil  prices early this month,  was yet another signal that the days of oil cartel’s dominance in the global market  are over.

    Members of the OPEC may continue to be important players in the oil markets, but the cartel has lost its priveledge ability to to control global oil prices. “according to Global Risk Insights, which accesses political and business risk around the world, the report said.

    OPEC nations, led by Saudi Arabia, traditionally have been the world’s swing oil producers, with enough reserves and daily production to control the price of oil. But that has changed  in recent years as the United States, Russia and other smaller non-OPEC countries increased production.

    Total OPEC production is about 37 million barrels a day compared to non-OPEC production of nearly 57 million barrels daily, according to Global Risk Insights.

    Despite waning influence, OPEC’s refusal to set production limits has played a major role in creating an oil glut, precipitating a two-year crisis that has seen the price of oil drop to as low as $26 per barrel earlier this year before climbing to $52 this month. That compares to prices of about $110 per barrel in 2014, when the crisis began.

    Some OPEC nations, led by Saudi Arabia, have been willing to absorb the financial shocks of plummeting oil prices in order to preserve market share, reasoning that the low prices would drive competitors, notably U.S. shale oil producers, out of business.

    OPEC has rebuffed calls to limit production by members Algeria and Venezuela, which have been hard hit by the slump. Saudi Arabia itself has not been immune to the financial impact of low oil prices.

    The Gulf nation has spent more than $150 billion of its reserves in less than two years and posted a deficit of $98 billion last year. Earlier this year, the Saudis borrowed $10 billion from a consortium of international banks, its first foreign debt in 25 years. The government also was considering asking creditors to take IOUs because it cannot pay its bills.

  • Pipeline bombings: OPEC chief backs ‘carrot and stick’ approach

    Pipeline bombings: OPEC chief backs ‘carrot and stick’ approach

    Incoming Organisation of Petroleum Exporting Countries (OPEC) Secretary-General Mohammed Barkindo yesterday backed the adoption of the “carrot and stick” approach to ending vandalism and bombing of oil, gas and power installations by the Niger Delta Avengers (NDA).

    He spoke at Aso Villa after a meeting with President Muhammadu Buhari.

    Barkindo, a former Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), was last month elected head of the secretariat of the oil cartel.

    He is the third Nigerian to hold the position after the late Dr. Rilanu Lukman and Michael Fidele before him.

    Barkindo said: “Well, I don’t think it will be appropriate for me to comment on this issue because we have heard what the minister of state has said; negotiations are ongoing. For me, based on my own experience here, the option of carrot and stick, ýas they call it, I think is the way forward.

    “Government, I understand, is negotiating, discussing and we are beginning to see positive results. So I don’t think it will be proper to preempt these discussions that are being handled by Dr. Kachukwu.

    “But I remain confident that through these negotiations, stable and permanent solutions will be found to this problem ýbecause the Niger Delta region is a very important part of our country and whatever we can do to address the challenges of development I think is the way forward.

    “I have been told that production is beginning to rise again; so, for us in OPEC this is the first thing we look at; how much is a member country producing? When we saw that production was falling in Nigeria as a result of recent challenges, the international community, the market also took note of that.

    “But now I think things are beginning to come back to normalcy and I have seen some of your reports that are also very positive. So your support is also very important because the oil market is fed by information not by crude oil.”

    Barkindo went on: “Now this structural changes swept across the entire industry, member countries of OPEC will have to remain united to confront these challenges. Every member country of OPEC has a variety of challenges both within the industry and the economy at least.

    “But tremendous efforts are being made by member countries to overcome the challenges. But at the organisational level, we will need more unity of ministers and governments, as well as our governors and our national representatives, so that together OPEC will be able to overcome these challenges and become even stronger.”

    “As I have told Mr. President a short while ago, there is no alternative to these reforms. Therefore, what we need to do is to together ensure these reforms are sustained.

    “The bane in the past has been lack of continuity of policies and programmes. Energy reforms, the world over, normally take some time to reach their targets. So, I think we have taken the right steps here and what we need is to continue and sustain these reforms so that the entire energy scene will be totally reformed at the end of the day in the interest of the country and the international community.”

    According to him, he got the OPEC job because of the tremendous respect ýand goodwill President Buhari commands internationally.

    He recalled that all the six countries that aspired for the position stepped down for him.

    Barkindo said: “It is not just Nigeria they took into cognisance; the integrity and status of Mr. President, that anybody that he will put his stamp of authority and endorse ýshould be considered and should be given a chance.

    “I’m flattered about Mr. Kachukwu’s remarks that my credentials made it easier for him to sell me but I must seize this opportunity to say though I had not met him before this, I am extremely impressed with the way and manner he carried out this special assignment given to him by Mr. President.

    “It has established him in the OPEC circle within a very short period of time, he is highly respected, being a lawyer, I think, also helped. He has very strong persuasive skills and he campaigned day and night and I just mentioned to Mr. President that you can’t have ýa better campaign manager than Dr. Ibe Kachukwu, who has turned himself to a real diplomat, in addition to being a technocrat. So, I think he should also be celebrated.”

  • Nigerian oil production at historic low, says OPEC

    Nigerian oil production at historic low, says OPEC

    Militant attacks in the Niger Delta region have pushed Nigerian crude oil production to its lowest level in more than a decade, a report from the Organisation of Petroleum Exporting Countries (OPEC) has said.

    The body, in its last month’s report, said Nigerian output slumped to levels not seen in over a decade on the back of a wave of militant activity.”

    It said the country’s crude oil production for May averaged 1.4 million barrels per day, down 15 percent from the previous month, adding that crude oil production averaged 1.8 million bpd during the fourth quarter of last yearThe International Monetary Fund (IMF), in its latest survey, said the challenges for Nigeria’s economy are “substantial” in view of the fact the country relies heavily on crude oil production for sustenance. The body estimates that Nigerian economy will decline for the rest of the year, while inflation runs close to 10 percent, adding the government’s deficit has doubled and total exports are down roughly 40 percent.

  • Nigeria, Canada lead OPEC’s output fall

    Nigeria, Canada lead OPEC’s output fall

    •Cartel predicts supply glut shrinking

    Politics of oil production cut, market oversupply

    At their 169th meet in Vienna, Australia on June, members of the Organisation of Petroleum Exporting Countries (OPEC) resolved to keep their production quotas for fear of creating more space for non-members in the global oil market. Assistant Editor EMEKA UGWUANYI writes on the politics of oil production ceiling.

    For a few years running, the Organisation of Petroleum Exporting Countries (OPEC) has refused to cut down production even in the face of plummeting oil prices and a glut in global supplies.

    Despite the negative impact on some member countries, the cartel stood firm on not cutting production to halt continued slide in prices, which fell to 12-year low early in the year.

    OPEC supplies one-third of global oil, and currently still has a collective output of about 31.5 million barrels per day despite crude oil prices rallying from below $30 per barrel and hovering around $40 per  barrel now.

    OPEC member countries including Nigeria and Venezuela, among others, had been pushing for production increase since 2014 without success. Venezuela reportedly has been the hardest hit. With 95 per cent of its income from oil, Venezuela is witnessing its worst recession since the 1940s, and the economy is expected to shrink by 10 per cent this year. Nigeria also is funding its 2016 Budget with non-oil revenues.

     

    Gains, losses of not

    cutting production

     

    Saudi Arabia is the world’s largest oil producer, supplying over 11 million barrels daily. It is the backbone and lead game changer of OPEC. Over the years, Saudi Arabia has been in the forefront of ensuring global oil market stability. Whenever there was market oversupply or undersupply, leading to low or high price, Saudi Arabia had always wielded its power to either cut, or increase supply to stabilise the market.

    But in the past few years, Saudi Arabia and OPEC by extension, has refused cut output as witnessed in the June 2 meeting. The implication is that it will be difficult to predict the direction of the oil market, which consequently will keep prices low.

    The primary reason for Saudi Arabia/OPEC not acceding to production cut is hinged on the fear of losing market share to the United States (U.S.). With the discovery and production of shale oil and gas, the U.S. became a big a producer and exporter of oil. But for the fact that the cost of production per barrel of shale oil and gas is 100 per cent higher than the production per barrel of conventional oil and gas.

    Besides making the U.S. oil and gas price uncompetitive and unattractive in the global market, OPEC has to keep production quota or even raise it as it remains the only way to guarantee its market share and discourage the U.S. launching into commercial production.

    At least, with low oil price, the U.S. will be able to meet its domestic fuel demand and rely less on imports but certainly will not like to sell its oil and gas far below production cost.

    Also the political conflict between Iran and Saudi Arabia over their differing positions on the Syrian issue, added to the inability of the cartel to reach a consensus on output cut. The Islamic Republic of Iran has the world’s fourth-largest crude oil reserves and the second-largest reserves of natural gas. It was pumping about 4.5 million barrels of oil per day before international sanctions brought that down its output to 2.8 million barrels.

    What obtained as at June 2, when OPEC held its 169th conference in Vienna, Austria, was the supremacy battle between Saudi Arabia and the U.S. and lately, Iran. For as long as the U.S. produced large quantity of oil and gas from shale, and the conflict between Iran and Saudi Arabia remained unresolved, oil price could not have witnessed an increase.

    Venezuela had wanted OPEC to change its policy to enable it come out of the woods but influential players like Saudi Arabia insisted on keeping production levels high, because they don’t want to lose customers to non-OPEC producers like the U.S. Therefore, any production cut could have triggered a short-term price increase.

    THE Organisation of Petroleum Exporting Countries (OPEC) has predicted a more balanced global oil market in the second half of this year.

    It based the prediction on the erosion of supply glut that has weighed on prices more quickly than expected, following outages in Nigeria and a wildlife fire in Canada as well as falling shale oil production in the United States (U.S.) .

    In the oil cartel’s monthly report, OPEC said its production cut by 100,000 barrels per day (bpd) in May was led by Nigeria.

    Persisted bombings of oil pipelines and facilities by restive youths, under the aegis of Niger Delta Avengers (NDAs), has forced a reduction in the daily production of crude.

    According to the Head of Energy Research at EcoBank, Dolapo Oni, production has dipped from 2.2mbp to 990, 000 bpd: no thanks to pipeline vandalism.

    Nigeria ranks seventh in terms of overall production of the 13-member cartel.

    In a comment on short-term market disruptions in May, OPEC said: “Nigerian output slumped to levels not seen in over a decade on the back of a wave of militant activity.”

    The OPEC report said that Nigeria crude oil production for last month averaged 1.4 millionbpd, down 15 per cent from the previous month. Production averaged 1.8 million bpd during the fourth quarter of last year.

    Nigeria relies heavily on oil for a source of revenue. In its latest survey, the International Monetary Fund said the challenges for Nigeria’s economy are “substantial.” Government deficit has doubled and total exports are down roughly 40 per cent.

    The IMF predicted that the Nigeria economy will decline for the rest of the year, while inflation runs close to 10 per cent.

    It maintained forecasts of seasonally higher demand for its crude in the second half of the year and falling supplies outside the group.

    The report states: “The excess supply in the market is likely to ease over the coming quarters. Shutdowns in Nigeria and Canada tightened the oil market markedly and brought supply and demand more closely into alignment earlier than many had expected, bolstering prices.”

    The OPEC’s report also points to excess supply of 160,000 bpd in the second half of the year if the group keeps pumping at May’s rate.

    According to the latest monthly report, OPEC recorded 2.59 mbpd excess supplies in the first quarter.

    “Commercial crude stocks declined by eight million barrels in May. By contrast, global stocks increased by 12 million barrels in March and April, and by 19 million barrels in February”, the report said.

    The chronic glut of oil forced market prices to their lowest point in 12 years in January, but as the excess supply dwindles, prices have rallied higher.

    Oil has risen to $50 a barrel from the 12-year low of $27 in January as the outages curb excess supply. The OPEC’s reference price for May averaged $43.21 a barrel, a gain of $5.35 compared to the previous month.

    “Provided that there is a clearer picture regarding oil supply and demand, the expected improvement in global economic conditions should result in a more balanced oil market toward the end of the year,” the 13-member group said yesterday.

    The forecast said global oil demand growth would continue to rise by 1.20 million barrels a day year-on-year.

    It said India would drive oil demand growth with China, adding that some support to that demand growth. It projected that demand for OPEC crude in the next six months was expected to average 32.6 million bpd, giving the group room to expand its current oil output.

    Though the report has predicted a rise in the demand for OPEC crude, the cartel has repeated its prediction that markets would continue to see a contraction in supply from rival non-member producers to the tune of some 140,000 bpd, compared to the first half, and almost one mbd lower, compared to the same period last year. However, it cautioned that there is still a massive global supply overhang.

    “I have always maintained that the oil market has been bullish since January. There is no doubt that the oil price has gone up faster than our expectation but I think we will hear a lot more talk now about prices hitting $55 or even $60 mark till the end of the year,” Mihir Kapadia,  the Chief Executive officer of Sun Global Investments, told Khaleej Times.

    He went on: “It will be important to note that if it goes too quickly there will be auto-corrections. People often talk about oil as trading within certain ranges.

    “An increase in crude oil to $50 per barrel can actually be quite an important psychological shift and be indicative of a more significant move to come. Bankruptcies in the sector have been bringing down production in the U.S., this is seen as one of the key elements to the supply glut being reversed.”

    He predicted that global oil stocks could begin falling by the end of the second quarter due to the disruptions in Canada and Nigeria.

    His words: “Cheaper petrol is also expected to drive demand. The U.S. government estimates fuel demand for cars will surpass a previous record set in 2007 this year. But where exactly the market goes from here is anyone’s guess, so investors should be prepared for either eventuality. The much-anticipated rebalancing of the market may still take little more time.”

     

  • Oil price rise as OPEC fails to set output cap

    Oil price rise as OPEC fails to set output cap

    Global oil market stabilisation dominated talks at yesterday’s meeting of the Organisation of Petroleum Exporting Countries (OPEC) in Austria. From a synergy between cartel members and non-members, the body believes, oil-producing nations will earn reasonable and sustainable revenue to provide stable, reliable, efficient and economic supply to consuming countries.  Oil industry investors will also have a fair return.

    Oil prices rose to $50.04 per barrel yesterday as the Organisation of the Petroleum Exporting Countries (OPEC) ended its meeting without setting a ceiling for crude production.

    Market participants had gathered in Vienna, venue of the meeting in Austria for signs of agreement on reviving the group’s collective output quota proposed by Saudi Arabia or the introduction of individual member country quotas suggested by Iran.

    But sources within OPEC said the organisation failed to agree on output policy or set a new ceiling.

    The market is currently oversupplied by an estimated 1.5-2.0 million barrels per day.

    Saudi Arabia promised yesterday not to flood the oil market with extra barrels even as members of the Organisation of Petroleum Exporting Countries (OPEC) failed to agree on output policy, with Iran insisting on the right to raise production steeply.

    Tensions between the Sunni-led kingdom and the Shi’ite Islamic Republic have been the highlights of several previous OPEC meetings, including last December’s, when the group failed to agree on a formal output target for the first time in years.

    But, tensions, however, were less acute yesterday in Vienna, Austria, where Saudi Arabia’s new Energy Minister, Khalid al-Falih, showed Riyadh wanted to be more conciliatory and his Iranian counterpart, Bijan Zanganeh, kept his criticism of Riyadh to an unusual minimum.

    The decision was a softening of Saudi Arabia’s previous stance where it rigorously pumped to defend its share of a market.

    In a rare compromise, OPEC also decided unanimously to appoint Nigeria’s Mohammed Barkindo as its new Secretary-General after years of friction over the issue.

    Barkindo, a onetime Group Managing Director (GMD), Nigerian National Petroleum Corporation (NNPC), replaces Libya’s Abdalla El-Badri, whose tenure expired since 2012, but stayed on because members of the cartel could not reach a consensus on a successor.

    As announced in Vienna, he will assume duty in August and serve for the next three years.

    Nigeria’s Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, led the countries team to the meeting, the 169th of such.

    Saudi Arabia and its Gulf allies had tried to propose that OPEC set a new collective ceiling in an attempt to repair the group’s waning importance. But yesterday’s meeting ended with no new policy or ceiling amid resistance from Iran.

    Despite the setback, Saudi Arabia moved to soothe market fears that failure to reach any deal would prompt OPEC’s largest producer, already pumping near record highs, to raise production further to punish rivals and gain additional market share.

    “We will be very gentle in our approach and make sure we don’t shock the market in any way,” al-Falih told reporters.

    When asked whether Saudi Arabia could accelerate production, he said: “There is no reason to expect that Saudi Arabia is going to go on a flooding campaign.”

    The market has grown increasingly used to OPEC clashes over the past two years as political foes Riyadh and Tehran fight proxy wars in Syria and Yemen.

    Between Riyadh and Tehran

    Saudi Arabia effectively scuppered plans for a global production freeze – aimed at stabilising oil markets – in April in the Qatari capital of Doha. It said then that it would join the deal, which would also have involved non-OPEC Russia, only if Iran agreed to freeze output.

    Tehran argues it should be allowed to raise production to levels seen before the imposition of now-ended Western sanctions over Iran’s nuclear programme.

    Zanganeh said Tehran would not support any new collective output ceiling and wanted the debate to focus on individual-country production quotas, effectively abandoned by OPEC years ago.

    “Without country quotas, OPEC cannot control anything,” Zanganeh told reporters. He insisted Tehran deserved a quota – based on historic output levels – of 14.5 per cent of OPEC’s overall production.

    OPEC is pumping 32.5 million barrels per day (bpd), which would give Iran a quota of 4.7 million bpd – well above its current output of 3.8 million, according to Tehran’s estimates, and 3.5 million, based on market estimates.

    Benign deal

    At its December 2015 meeting, OPEC effectively allowed its 13 members to pump at will.

    As a result, prices crashed to $27 per barrel in January, their lowest in over a decade, but have since recovered to around $50 due to global supply outages.

    That OPEC could not agree on a benign deal is a sign that political differences are undermining the organisation, said Gary Ross, founder of Unted States (U.S.)-based PIRA consultancy.

    “It is bearish short-term for oil prices. But what is also important is that Saudis are not planning to flood the market,” Ross added.

    Zanganeh made a few conciliatory remarks, saying he was happy with the meeting and received no signals from other producers that they planned to increase output.

    Amrita Sen of Energy Aspects, who, like Ross, travelled to Vienna to meet OPEC officials, the meeting sent an encouraging signal about the state of the organisation.

    “After the Doha debacle, it actually restores market confidence that Saudi Arabia is committed to OPEC. This is a success compared to three days ago when people had been expecting al-Falih to walk out of the OPEC room,” said Sen.

    Brent crude oil futures were down 54 cents, or one per cent, at $49.18 a barrel after touching an intra-day low of $48.84.

    U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1.2 per cent, to $48.41, after tumbling more than $1 earlier.

    Some traders said crude prices were partly pressured by the dollar’s recovery, following comment by European Central Bank President Mario Draghi that was considered bearish for the euro.

    The early arrival of al-Falih in Vienna for yesterday’s meeting confirmed he takes the organisation seriously despite fears among fellow members that Riyadh no longer has keen interest in having OPEC set output.

    The Saudis minister was the first to arrive for the meeting.

    “There could be shorter-term situations in which, in our view, OPEC might intervene and yet other situations — such as long-term growth of marginal barrels — in which case it should not,” al-Falih told Argus Media ahead of the meeting.

  • Nigeria’s Barkindo becomes OPEC scribe

    Nigeria’s Mohammed Barkindo will serve as the Secretary General of the Organisation of Petroleum Exporting Countries (OPEC) for the next three years.

    The cartel’s oil ministers announced this in Vienna on Thursday, the News Agency of Nigeria (NAN) reports.

    Barkindo will succeed long-time secretary general of the organisation , Abdalla El-Badri of Libya, from August.

    NAN reports that the 13-nation group did not reach a decision on limiting of oil output.

  • Better oil market likely as OPEC ministers meet today

    Better oil market likely as OPEC ministers meet today

    OIL ministers from Organisation of Petroleum Exporting Countries (OPEC) members were yesterday confident that the market was on the path of recovery.

    “The market is improving,” Iraq’s Deputy Oil Minister Fayyad al-Nima, said a day ahead of OPEC’s bi-annual forum in Vienna, Austria.

    “The market will become better in the second half of the year,” he predicted, in comments echoed by other delegates from the 12-member group.

    The most powerful though, Saudi Arabia’s new oil Minister Khaled al-Falih – newly appointed by the dynamic young Deputy Crown Prince Mohammed bin Salman – was tight-lipped.

    Traditionally, OPEC, which pumps around a third of the world’s crude, has collectively cut back or increased output in an attempt to manage the volatile oil price.

    But in the most recent drop, which has seen oil tumble from over $100 in 2014 to close to $25 in January, OPEC – driven by kingpin Saudi Arabia – has changed tack.

    Instead of reducing output, it has kept the oil flowing in order, experts say, to keep hold of market share by squeezing competitors – particularly United States (U.S.) shale oil producers.

    Although it has taken some time, straining even Saudi Arabia’s finances, the strategy appears to be bearing fruit, with non-OPEC output on course this year to fall sharply.

    Last week, the price per barrel touched $50 for the first time in six months, making OPEC – spilt by rivalry between Saudi Arabia and Iran – breathe easier.

    United Arab Emirates (UAE) Oil Minister Suhail al-Mazrouei, said on Tuesday that he expected 2016 to be “the year of correction”.

    “The rules of the market, which is the supply and demand, are working,” he told reporters in Vienna on Tuesday.

    Angola’s Oil Minister Jose Maria Botelho de Vasconcelos said that the price “tendency is a little bit positive.

    However, Vasconcelos also said that Angola needed the price to rise further, while Venezuela’s oil minister expressed worries that the recent recovery might peter out.

    Petroleos De Venezuela, S.A Board Chairman and President, Eulogio del Pino, whose economy has been pushed to the brink by the weak oil price, said the recent rise was due to exceptional factors that have reduced global output.

    These included strikes in Kuwait, wildfires in Canada, disruption in Nigeria and lower output in Colombia, he said.

    He said: “It’s not the situation of the market. It’s some circumstances. When those circumstances are removed, what is going to happen?”

    Algeria’s Oil Minister Salah Khebri said a rebalancing of the market was “on track”. He added however that further “efforts” were needed.

    Venezuela casts doubt

    on OPEC ‘success’

    Venezuela’s oil minister yesterday cast doubt on suggestions that OPEC’s strategy was behind a recent recovery in the price of oil to $50, saying it was due to other, one-off factors.

    “We don’t agree,” Eulogio del Pino told reporters in Vienna yesterday.

    “It’s not the situation of the market, it’s some circumstances,” he said. “When those circumstances are removed, what is going to happen?”

     

    OPEC’s Secretary-General

    Members of the Cartel are expected to name a replacement for its Secretary-General, Libya’s Abdalla El-Badri in today’s meeting. The Libyan has been in the post since 2007.

    Del Pino said that he was in favour of Alí Rodríguez Araque, currently Venezuela’s ambassador to Cuba, getting the job. He previously held the position from 2001-2002.

    Badri was due to step down in 2012 but has stayed on because OPEC has been unable to agree on a successor.

    Nigeria’s Mohammed Barkindo and Indonesia’s Mahendra Siregar are other contenders for the OPEC top job, according to a report by Bloomberg.

    Russian news agency Interfax quoted an unnamed source as saying that there was a “very strong probability” that it would be Siregar, a former deputy finance minister.

    But Angola’s Vasconcelos has given his backing to Barkindo, a onetime Group Managing Director (GMD) of Nigerian National Petroleum Company (NNPC).

     

    Oil drops in cautious trade

    Ahead of today’ s meeting, oil prices dropped yesterday, as traders trod cautiously before the scheduled forum in Vienna, and set aside upbeat Chinese data.

    The market rebounded for the first time last week to $50 from January lows of under $30 per barrel on production outages in Canada and Nigeria.

    But oil has since retreated and remains at less than half of their 2014 peaks of over $100 because of chronic global oversupply.

    At about 1145 GMT, U.S. benchmark West Texas Intermediate for next month’s delivery weakened 64 cents to $48.46 per barrel.

    Brent North Sea crude for August delivery, a new contract, also fell 64 cents to $49.25 a barrel compared with Tuesday’s close.

    “Brent crude continues to be constrained by the $50 per barrel level ahead of tomorrow’s bi-annual OPEC meeting,” noted Inenco analyst Dorian Lucas.

    Today’s meeting by the 13-member OPEC cartel is the first with Saudi Arabia’s new oil minister – a close ally of Prince Mohammed bin Salman, who has been outspoken about not reducing oil production.

    The recent recovery in prices has eased pressure on the group to turn down the taps at this week’s gathering, analysts predict.

    “This week’s OPEC meeting could be quite interesting, although with oil prices where they are, I would be very surprised if any plans to cut or freeze production are announced,” noted Oanda analyst Craig Erlam.

    OPEC, which pumps around a third of the world’s oil or some 30 million barrels every day, has historically responded to a fall in prices by cutting production.

    But in the current cycle, oil-producing nations, led by Saudi Arabia, have changed strategy, maintaining output even with lower prices in order to pressure U.S. shale producers.

    Major OPEC player Iran has also indicated its unwillingness to cap production after the lifting of nuclear-linked Western sanctions in January.

    Yesterday, an official data from China showed factory activity expanded for the third straight month in May.

    The Purchasing Managers’ Index, which tracks activities in the country’s factories and workshops, showed a reading of 50.1. Any reading above 50 signals expanding activity.

    IG Markets analyst Bernard Aw said the change was “too marginal” to hint at a pick-up in crude demand in one of the world’s largest energy consuming nations.

     

    Niger Delta Avengers

    Attacks on oil installations and pipeline facilities the oil-rich region by militants under the auspices of Niger Delta Avengers (NDA) have triggered production cut in Nigeria.

    The NDA, made up of restive youths, describe themselves as young, well-educated “worthy outlaws” and have since the beginning of this year, been attacking oil and gas infrastructure, helping to drag production to 20-year lows.

    They demand an independent state and want international oil companies out of the region.

    “Even the Nigerian security services are not 100 percent sure what they are up against,” Dirk Steffen, from the Denmark-based Risk Intelligence firm, told AFP.

    “Given their ability to execute attacks on critical oil and gas infrastructure, it’s likely some members were part of former militant organisations”, Steffen added.

    But the NDA modus operandi has generated debate.

    “The Avengers may not be a defined group of people, except for a core of maybe 100-150 people or so,” said Steffen.

    In 2009, the Federal Government struck a ceasefire with militant groups which previously disrupted oil production and introduced an amnesty programme.

    That gave former rebels a monthly stipend and jobs training in the oil industry as welders, divers and technicians.

    But after the economy took a nosedive following the crash in global oil prices, President Muhammadu Buhari has struggled to pay for the amnesty programme.

    He has even hinted at winding it down, making some 30,000 ex-militants on the payroll angry.

    The President has also ended security contracts with former militants to protect pipelines.

    Like previous militant groups, the Avengers want a greater share of oil revenue, amnesty payments and clean-up and compensation for spills.

    But they also have a series of political demands that culminate in the creation of an independent Niger Delta state.

    They demand the release of pro-Biafra leader Nnamdi Kanu, who has been imprisoned on charges of “treasonable felony”, and insist that the anti-corruption war being waged by the Buhari administration should be extended beyond members of the opposition Peoples Democratic Party (PDP).

    “The Avengers and other groups that have popped up in recent months are likely getting some support from former the opposition, “Philippe de Pontet, sub-Saharan Africa analyst at risk consultancy firm Eurasia Group, said in a recent report.

    “It was always expected that there would be backlash to the Buhari administration in the region. If anything, the surprise is that the first 10 months of Buhari’s term were as quiet as they were.”

    Their attack on Shell’s Forcados underwater flow line in February using divers showed they have the skills and knowledge of oil infrastructure to target areas that will significantly halt production.

    Other attacks include the sabotage of Chevron’s offshore Okan gas valve platform, and bombings of Eni’s infrastructure and NNPC pipelines, which provide gas to Lagos for power generation.

    The Federal Government has budgeted 2.2 million barrels per day (bpd) production for this year but the attacks have cut output to 1.4 million bpd, according to Minister of State for Petroleum Resources Dr. Emmanuel Ibe Kachikwu, who doubles as NNPC GMD.

    The sabotage could not have come at a worse time, with the country, which depends on oil export sales for 70 per cent of government revenue, on the brink of a recession.

    Internationally, Nigeria’s oil disruption – along with unrest in Libya and wildfires in Canada – has pushed up the price of the commodity around the world.

    Last week, President Buhari spoke of a plan to “re-engineer” the amnesty programme, which could be an olive branch to the militants.

    He has, however, deployed more troops to the creeks and swamps of the Niger Delta region to protect oil installations.

    The group yesterday claimed responsibility that its members bombed two oil wells operated by U.S. firm – Chevron – in Delta State.

    “With the heavy presence of 100 gunboats, four warships and jet bombers NDA blew up Chevron oil well RMP 23 and RMP 24 3:44 am (0244 GMT) this morning (Wednesday),” it said on Twitter.

    Chevron officials refused to comment but an industry source who pleaded anonymity said: “I can confirm the attack on the two oil wells.

    “It has resulted to a leak spilling oil into the place. We have reported to Chevron and we are awaiting directives from them,” the oil worker told AFP.

    The NDA has launched a series of attacks since the start of this year on Chevron, Shell, ENI and the state-run Nigerian National Petroleum Corporation (NNPC).

    The military, which has branded the NDA members “economic terrorists”, has deployed gunboats and fighter jets to stop the violence and hunt down the militants.

  • Barkindo set to pick OPEC job

    Barkindo set to pick OPEC job

    A Nigerian oil technocrat, Mohammed Barkindo, has emerged the frontrunner to take the top job at the Organisation of Petroleum Exporting Countries (OPEC).

    It was learnt that members are seeing Barkindo as a rare compromise candidate to lead the group amid rising tensions between Saudi Arabia and Iran.

    Barkindo has been a key face of the Nigerian oil industry in the last decade.

    OPEC is likely to choose Barkindo, a former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), as the next secretary-general of the producer group, three sources with knowledge of the matter told Reuters news Agency..

    The OPEC has since 2012 been looking for a replacement for Libya’s Abdullah al-Badri, who was elected acting secretary-general in December until the end of July after serving full terms.

    However, Barkindo’s appointment was by no means certain and Badri’s tenure could yet be extended by another six months, some sources said.

    Rivalries between OPEC heavyweights Saudi Arabia, Iran and Iraq have so far prevented the group from choosing candidates proposed by those countries.

    OPEC oil ministers will meet tomorrow in Vienna. The consensus of all members – which in the past has sometimes been elusive – is required for the appointment of a new secretary-general.

    Barkindo led the NNPC from 2009 to 2010 and served as acting secretary-general of OPEC in 2006 after the original Nigerian nominee, junior oil minister Edmund Daukouro, took over the rotating OPEC presidency.

    Barkindo also served on OPEC’s economic commission and held various high-ranking positions during a career at NNPC that spanned over two decades.

    He was deputy managing director of the Nigerian Liquefied Natural Gas Company, a joint venture between NNPC, Shell Gas BV, Total and Eni.

    He was also head of NNPC’s London office, managing director of NNPC’s oil and gas trading division, and an NNPC group executive director.

    “He’s a reasonably safe pair of hands and good for a more administrative role like secretary-general.”

  • OPEC losing force on oil market control

    OPEC losing force on oil market control

    The Organisation of Petroleum Exporting Countries (OPEC) is gradually losing its force and control on the oil market. The collapse of oil producers meeting in Doha, Qatar was a worrisome signal because the presence of the organisation’s leader, Saudi Arabia, couldn’t make a difference.

    Although the organisation counts 13 countries among its membership, but Saudi Arabia has long reigned as a first among equals, coming handy whenever there was need to intervene in the global oil market especially at periods of low oil. Saudi Arabia produces about 10.2 million barrels per day (bpd), which is about a third of OPEC’s total output, and about 11 per cent of world supply.

    Last week’s failed talks in Doha to enact a production freeze, according to Platts report, saw a potential new oil producer group emerge with another player in the room that could have changed the dynamics of the market and challenged Saudi political eminence in world oil affairs.

    The Doha summit of 18 nations included 11 OPEC members and several major non-OPEC producers, most notably Russia, whose output surpasses Saudi Arabia’s at close to 11 million bpd, according to its energy ministry.

    Russia has geopolitical ambitions that in many cases do not align with Saudi Arabia’s, particularly in the Middle East, where the two have clashed over the civil wars in Yemen and Syria.

  • Oil prices tumble after Doha talks collapse

    Oil prices tumble after Doha talks collapse

    Oil prices tumbled on Monday after a meeting by major exporters in Qatar collapsed without an agreement to freeze output.

     

    Tensions between Saudi Arabia and Iran were blamed for the failure which revived industry fears that major government-controlled producers will increase their battle for market share by offering ever-steeper discounts.

     

    The failure also made the credibility of the OPEC producer cartel in tatters and the world awash with unwanted fuel.

    “OPEC’s credibility to coordinate output is now very low,” said Peter Lee of BMI Research, a unit of rating agency Fitch.

     

    “This isn’t just about oil for the Saudis. It’s as much about regional politics.”

     

    Morgan Stanley said that the failed deal “underscores the poor state of OPEC relations.’’

     

    “We now see a growing risk of higher OPEC supply,” especially as Saudi Arabia threatened it could hike output following the failed deal.

     

    Oil prices have fallen by as much as 70 per cent since mid-2014 as producers have pumped one to two million barrels of crude every day in excess of demand.

     

    The oversupply has led storage tanks around the world filled to the rims with unsold fuel.

     

    Sunday’s meeting in Qatar’s capital, Doha, had been expected to finalize a deal to freeze output at January levels until October 2016 in an attempt to slow that ballooning oversupply.

     

    But the agreement fell apart after top exporter Saudi Arabia demanded that Iran, which was not represented, should also sign up.

     

    The Sunni Muslim kingdom of Saudi Arabia and Shia Islamic Republic of Iran compete for influence in the Middle East, where they are currently fighting proxy wars in Syria and Yemen.

     

    Brent crude futures fell almost seven per cent in early trading on Monday before recovering to 40.97 dollars per barrel, still down 2.15 per cent since their last settlement.

     

    Traders said only an oil worker strike in Kuwait had prevented Brent from tumbling below 40 dollars per barrel, while a cut in U.S. drilling down to 2009 levels had prevented steeper falls there.

     

    Benchmark U.S. crude futures were down more than five percent at 38.31 dollars a barrel.

     

    Goldman Sachs said the Doha no-deal could a “bearish catalyst” for U.S. crude prices, which it forecast would average 35 dollars a barrel in the current quarter.

     

    Analysts said that the failed agreement would also impact the broader economy.

     

    “In the near-term, lower oil prices are bound to weigh on investor confidence and could exacerbate financial volatility,” said Frederic Neumann, co-head of Asian economics research at HSBC.

     

    “Concerns over financial stability in the energy sector and a further fall in drilling capex are headwinds to growth against an already fragile global economic backdrop.”

     

    With producers such as Saudi Arabia and Russia pumping near record levels and Iran also increasing output following the lifting of international sanctions against it last January, there is no end in sight for the global oil glut.

     

    Iran was the only OPEC member not to attend the Doha talks.

     

    Despite calls on Saudi Arabia to save the agreement, Riyadh, OPEC’s de facto leader, insisted that all 13 members must take part in any freeze.

     

    “It seems that for the Saudis politics and national pride are still more important than the price of oil,” said Ralph Leszczynski of shipbroker Banchero Costa.

     

    Iran has refused to stabilise production, seeking to regain market share post-sanctions.

     

    “Iran has no reason to auto-sanction themselves when they are just trying to get back some of the market share they lost in recent years due the western-imposed sanctions,” Leszczynski added.

     

    While tumbling oil prices hurt producers, straining the budgets of energy exporters from Russia to Malaysia, they can also benefit consumers.

    As a result of the failure at Doha, Barclays said that Brent would likely average 36 dollars per barrel during the second quarter of this year as a global glut continued unabated.

     

    “This meeting and its outcome should have built… trust among producers for possible future cooperation and coordinated action. In this regard, the meeting was a complete failure,” Barclays said.

     

    It added that “the failure of the talks gives the market another clear indication that OPEC’s relevance in this market environment has faded.”