Language version

Business

OPEC At Brink of Ending Oil Price War, Awaits G20 Meeting

Advertisement

Published

on

In a move to save the oil industry, facing the biggest crisis in its history, OPEC and Russia have agreed on new production cuts, with the OPEC+ group agreeing to eliminate 10 million barrels of crude per day for an initial two-month period to save a glutted oil market.

Mexico is the only country in the extended OPEC+ group to have refused to take part in the cuts at the same level as others, its energy minister Rocio Nahle proposed a reduction in national output of 100,000 barrels per day instead of the 400,000 barrels per day requested.

Though the new OPEC+ deal is not dependent on additional cuts from outside the group to move forward, such as the United States, Brazil and Canada, OPEC+ is hoping for additional cuts from these and other G20 countries.

The OPEC+ production cuts will begin in May but can only proceed if Mexico participates. From July to December, overall production cuts will lower to 8 million barrels per day, followed by 6 million barrels per day from January 2021 to April 2022.

The fate of a new “OPEC++” deal, in which additional countries could sign up to production cuts, will be the focus of a virtual meeting of G20 energy ministers on Friday, with the US Energy Secretary Dan Brouillette among the global energy leaders expected to participate in the webinar. Alberta Energy Minister Sonya Savage was on Thursday’s OPEC+ call, a first for Canada.

The OPEC+ production cuts would just run through June 10, when OPEC+ is set to meet again. Iran, Libya and Venezuela will be exempted. Saudi Arabia and Russia would bear the brunt of the cuts.

Brent crude was down 4 percent at market close, losing pace from a nearly 11 percent rally before the details of the deal were announced. Brent closed at $31.48 per barrel.

Free market or bust?

Thursday’s deal would bring an end to the oil price war between Saudi Arabia and Russia, which started March 8 in an effort to regain market share captured by United States shale oil production in recent years. In moving to end the oil price war, both Saudi Arabia and Russia have called on the participation of global producers outside the OPEC+ group to join production cuts.

That issue is set to be addressed at Friday’s virtual G20 meeting, but the United States has balked at the idea of officially joining cuts, citing an open market and anti-trust laws.

However, President Donald Trump has indicated the US, a top oil producer along with Russia and Saudi Arabia, will naturally see sharp declines in oil and gas production with the steep drop in oil prices and drop in global demand. Trump has radically changed his position on OPEC, as the oil market collapse foreshadows a collapse of US shale.

“Obviously for many years I used to think OPEC was very unfair,” Trump told reporters on Wednesday. “I hated OPEC. You want to know the truth? I hated it. Because it was a fix. But somewhere along the line that broke down and went the opposite way. … We have a tremendously powerful energy industry in this country now, No. 1 in the world, and I don’t want those jobs being lost.”

The US shale industry, however, remains sharply divided on official production cuts — with majors like Exxon and Chevron calling for a free market and smaller independents more eager to join production cuts.

In 2019, US oil production averaged 12 million barrels per day.

But production is now projected to fall by at least 15 percent in the second quarter of 2020 and another drop of 12 percent in the third quarter, according to the EIA.

Several companies in the Permian Basin are asking for a hearing with the Texas Railroad Commission, the regulator, to determine mandatory production cuts.

As of yet, no such meeting has been called.

Global pandemic coincides with price war

Oil prices plummeted in recent weeks, as the oil price war between Russia and Saudi Arabia, which began on March 8, was amplified by an unprecedented drop in oil demand caused by the COVID-19 pandemic.

About 40 percent of the world’s population has been ordered to stay home to stem the spread of COVID-19, according to the Energy Information Agency, and unforeseen impacts on travel, tourism, manufacturing, and joblessness have since seen global oil demand plummet by about 30 percent, from over 100 million barrels per day to under 85 million barrels per day.

The virtual OPEC+ meeting, in fact, was an indicator of the new reality, as many of the world’s top oil and gas leaders joined the meeting from their home countries.

Brent crude was averaging $55.70/barrel in February, before the oil price war and the impacts of COVID-19 were known.

Ahead of the meeting on Thursday, Brent crude was trading at $33.41 and WTI at $25.92. Both Brent and WTI have reached their lowest level in years, with Brent hitting $22.76 per barrel in March, its lowest price since November 2002.

“The global spread of the Coronavirus is creating a demand shock that is impacting already fragile world energy market balances. Markets are continuing to assess the yet unknown risks of COVID-19 to the global economy as the disease continues to suppress economic activity,” said Dr Sun Xiansheng, Secretary General International Energy Forum, in a statement.

As demand for oil and the price of oil has declined, storage capacity is reaching its limits. In just a few weeks, analysts predict oil production may be shut in due to a lack of global storage capacity.

“Low oil prices combined with the inelastic nature of refined product supply and demand is usually a boon to refining margins. However, COVID-19 also impacts downstream profitability caused by erosion in demand. The combination of sustained shocks to supply and demand will cause product inventories to rise to new highs,” Dr Sun continued.

Impact on Africa

Africa has a lot to lose from a sustained low oil price, in addition to the damaging economic impacts of COVID-19.

Economic powerhouses like Nigeria and Angola, which reportedly had difficulty selling oil production ear-marked for export in April, could take especially hard hits, made especially vulnerable by a lack of economic diversification.

As a whole, the continent’s oil producers have pushed for cooperation at the OPEC+ meeting, urging for a stabilized oil market and reduction in production.

In a joint statement, the Africa Petroleum Producers Organization called for OPEC and non-OPEC members to cooperate in stabilizing the oil market.

“We reiterate our support to OPEC and non-OPEC member countries as well other global oil producers in their concerted efforts at ensuring long term stability of the global oil market. Furthermore, we urge the G20 countries to offer assistance to Africa as we struggle to ward off this pandemic and price stabilization process in the oil markets,” said H.E. Foumakoye Gado, President of the Council of Ministers of APPO and the Minister of Petroleum of Niger.

Timipre Marlin Sylva, the Minister of State for Petroleum Resources of Nigeria, also urged for cooperation heading into Thursday’s meeting.

“The driving force of our OPEC policy is first the stability of our national economy as well as the stability of the global economy which is heavily dependent on OPEC and its strategic partners, popularly referred to as OPEC+. Nigeria, like the rest of the world, has been hit by the Global Pandemic, COVID-19, and is prepared to join the rest of the world in making the necessary sacrifices needed to stabilize the crude oil market; and to prevent what is likely to be a major global economic meltdown,” said Sylva.

NJ Ayuk, Executive Chairman of the African Energy Chamber, supported the deal and advocates for further cuts.

“The OPEC deal is a good one. We can work with it for now. African countries will not recover from COVID-19 and the associated economic difficulties without a strong energy sector. The oil industry helped the continent pull itself out of the last economic recession of 2008. African businesses and workers will be happy to see the end to the price war and to maintain an industry that meets their hopes and aspirations. A global cut would be better and everyone needs to put some skin in the game, especially our friends from the US, Canada and Norway.”

South Sudan, a member of the OPEC+ cooperation, backed the production cuts.

“South Sudan believes that market volatility is negative for every player in the market and hurts our ability to attract new foreign investment, diversify our economy and promote peace,” stated Minister of Petroleum Hon. Puot Kang.

“South Sudan is focused on boosting exploration and opening up new oil and gas fields, and the current scenario hampers our growth targets significantly.”

The International Monetary Fund is already working closely with African countries to stave off recessions and an economic collapse.

Governments throughout the continent are calling for debt relief as the global economic crisis deepens.

The World Bank and the IMF have both expressed support for debt relief as less developed economies navigate the COVID-19 fallout.

Advertisement
1 Comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

Hundreds Of Passengers Miss Flight In Uganda Due To Delayed COVID-19 Tests

Published

on

Hundreds of Ugandans have been left stranded at Entebbe International Airport by the Emirates Airways after the laboratory where they had taken their Covid-19 results delayed to return them on time.

In a Snapchat post by Ugandan socialite Sheila Gashumba, she ranted, ‘’When I tell Ugandans that Covid in Uganda is a business they say I have ‘kajanja’.

Now all Emirates passengers have missed their flights because Safari Lab sent Covid results at 2:45pm and Emirates closed its gate at 3pm.

The hospital said it couldn’t work on everyone in the short time.

Around 300 passengers missed their flight yet Safari Lab had made a total of UgSh75m since everyone had paid UGX 250,000 for the test.

In the video where all passengers were visibly angry and frustrated, they can be heard asking for what the solution is and who is going to pay for the tickets again now that those that they had paid for can no longer be used anymore.

Passengers expressed their frustration at the rot in the service.

“I experienced such thing in March as the officers in charge claimed that the gates were close at 1pm as the flight was at 3pm,” one twitter user said.

Some made jokes out of it and asked, if this was because of the US$10 tax that is in the process of being introduced and will be paid by anyone that leaves the country using the Entebbe International Airport.

Another twitter user @kasoxialex2000 asked, ‘’@UgandaCAA (Uganda Civil Aviation Authority), but seriously you guys when you move to some airports don’t you copy something? Why are we ever backwards??? Stop embarrassing us. Who will save Uganda’’
By press time there was no official communication from the Civil Aviation Authority, Safari Lab nor Emirates Airways.

Continue Reading

Business

Kagame Tells Bankers, Banking Can’t Just Be “Service For Elites”

Published

on

Banking can’t just be a service for elites, President Paul Kagame has said.  He made the remarks while speaking at the 14th Annual Banking and Finance Conference in Nigeria that he attended virtually.

Running under the theme, ‘’Economic Recovery, Inclusion and Transformation: The Role of Banking and Finance’’, the two-day conference will aim at the need to reposition the Finance and Banking sector as a catalyst for Economic recovery, transformation and inclusive growth.

In his remarks, he noted how the Covid pandemic has affected every aspect of Africa’s economies but at the same time also presents an opportunity for African banks to play a leading role in making societies more resilient and more responsive to the needs of Africans.

‘’Whatever affects business, affects banking. Financial services are the engine of private sector development. Banks are crucial for allocating capital wisely and productively,’’ he further added.

President Kagame noted that, in order to stay competitive, there is need to keep integrating new technology into banking to increase financial inclusion and access as banking can’t just be a service of elites.

He also went ahead to reemphasize what he has always said when it comes to African states always depending on the West and other countries for support. ‘’Indeed, Africa has the resources to fund its own economic growth and reduce dependence on external resources,’’ he said.

Kagame also noted that the African Continental Free Trade Area is creating new opportunities for Pan African Trade and investment. ‘’Banks with continental reach, like several of the institutions represented here can lead the way in cementing economic integration.’’

As he concluded, he stated how the banking sector, more than any other, understands the importance of integrity and good customer service. ‘’Banking is ultimately about trust. We look to you to set the pace in this regard. Our role as governments is to maintain good enabling environments, protecting both shareholders and customers while allowing for innovation. We expect you to keep challenging us on this,’’ he said.

In attendance at the same conference was the Central Bank of Nigeria Governor Edwin Emefiele who made a huge announcement.  He said, ‘’Central Bank, will, in the next twelve months be establishing the Nigerian International Financial Centre (NIFC). The NIFC will act as an international gateway for capital and investments, driven by technology and payment system infrastructure.’’

In Rwanda, current statistics show that even though there are still various challenges that continue to put women behind men when it comes to financial inclusion, the number of women who are currently banked have risen from 24% in 2016 to 34% in 2021.

This is according to a FinScope 2020 Gender thematic report on the state of women financial inclusion in Rwanda that was supported by Access to Finance Rwanda (AFR).

In one of the Focus Notes from Access to Finance Rwanda, farmers reported that women and men enjoy equal rights and treatment at specified two Financial institutions in the Focus note and therefore no special gender based treatment yet the outcomes of each groups are not equal.

At both Financial Institutions, women and youths are more likely to use loans to hire land farm as they lack access to land and they have been assisted by addressing some of the barriers that women and youth face in accessing loans.

The conference will therefore focus on how banking can be a service enjoyed by all Africans regardless of their financial strengths through making access to finance for development is an easy and smooth process.

Continue Reading

Business

400K Coffee Farmers To Adopt Cashless System

Published

on

About 400,000 coffee farmers in Rwanda are being targeted to embrace a cashless payment system facilitated by Bank of Kigali.

On Friday, Bank of Kigali through IKOFI integration with Smart Kungahara System (SKS) said it expected to serve more than 300 coffee washing stations, with a target market size of more than 400,000 coffee farmers.

“Through our partnership with RWACOF, we enabled coffee farmers to embrace cashless means of payment. We believe in digital transformation for everybody including farmers. These telephones will significantly help famers to adopt a more digital lifestyle,”said ⁦⁦Diane Karusisi the CEO Bank of Kigali.

According to BK, currently, 1,767 agro dealers and 263,691 farmers are active IKOFI wallet users benefiting from the service by digitally paying for their agro-inputs through mobile phones, conveniently paying for other services such as Irembo, RRA, WASAC, all done through *334*2#.

Continue Reading

Trending

Share
Share via