• Crude Oil Prices And The Lingering Uncertainty

    Crude oil prices have plummeted by more than 70% over the past 20 months, to twelve-year lows. The impact on both producing companies and countries has been significant. Major oil and gas companies have seen large dips in profits. In 2015, BP suffered its largest annual loss in two decades while ExxonMobil, Royal Dutch Shell and Chevron had 50%, 80% and 76% decline in earnings respectively, for the same period. ConocoPhillips cut its dividend by about 66%. Revenues for members of Organization of the Petroleum Exporting Countries, OPEC, are expected to slump to about US$400 billion from US$1.2 trillion in 2012. Azerbaijan and Nigeria are mooting emergency loans from the International Monetary Fund, IMF, while many analysts are expecting a Venezuelan default on her foreign debt. Even Saudi Arabia’s fiscal reserves fell to a four-year low last year.

    Market Uncertainty

    While the current turmoil in the global economy derives from concerns about the health of the global economy, the impact of oil prices contributes in no small measure. As China, a major energy ― especially oil ― consumer transitions from an emerging market to a developed one, a marked reduction in her growth rate may be the new order. During her years of steep economic growth, China was an export destination for commodities from countries such as Russia, Brazil, Chile and Nigeria among many others.  The downturn has meant falling demand for these commodities and with falling oil demand has come falling oil prices. The current capital flight estimated at tens of billions of dollars per day, is a testament to the country’s influence on global markets.

    S&P 500 vs S&P 500 Energy

    While the shale producers in the United States have shown unexpected resilience in the face of low oil prices, it is doubtful if the debt-ridden operators can sustain operations at current crude oil prices. WTI (CL1:COM) closed US$27.32 on Thursday. Continue reading  Post ID 449



  • A Window On Crude Oil Prices

    Driven by a massive and lingering imbalance ― excess of supply over demand ― global crude oil prices have fallen by more than 60% Spot Crude Oil Pricessince mid-2014 to multi-year lows, and the impact has been significant. Producing companies have deferred or even cancelled development projects worth billions of dollars and industry job losses are estimated to be about 200,000 with more expected. Once-bustling oil patch communities have become near-ghost towns. Corporate profits among the oil majors slumped as much as 64% year-on-year; some upstream companies have filed for bankruptcy and both banks and investors that are exposed to them have been impacted.

    Going forward, certain critical issues will likely define global oil prices.

    Fundamentals

    The International Energy Agency, IEA, recently reported a massive global crude oil inventory of about 3 billion barrels. Estimates of the current global crude oil imbalance range from 1.5 million barrels per day (MMbpd) to 3 MMbpd. According to the Organization of the Petroleum Exporting Countries, OPEC, that value is about 2 MMbpd. With increasing supply and a sluggish growth in demand, there is at present, no real indication that the widening imbalance will be reversed any time soon. Global crude oil prices therefore, baring incidental effects, will likely remain low in the near term. Continue reading  Post ID 436



  • Nigeria: The Challenge of Petroleum Resources Management (II)

    Nigeria boasts the largest economy on the African continent; her Gross Domestic Product, GDP, of US$573.652 billion in 2014, exceeded the next-largest, South Africa by more than 50%. With an output of about 2 million barrels per day (bpd), the country, a member of Organization of the Petroleum Exporting Countries, OPEC, also produced more crude oil than any African country in 2014. Nigeria has also been a destination for significant Foreign Direct Investment, FDI, particularly in the oil and gas sector. Oil majors Shell, ExxonMobil, Chevron, Total and Eni have invested billions of dollars in the country’s deep offshore projects. Gross Domestic Product 2014 - Top African CountriesPetroleum resources provide more than 80% of the country’s export revenue; however, the slump in crude oil prices from over US$100 per barrel mid-2014 to less than US$40 per barrel at present, has severely affected her foreign exchange earnings. The country’s reserves have fallen by more than a quarter from January 2014 levels. According to Reuters, the fall in reserves was due in the main, to sale of dollars by the central bank in order to defend her currency, the naira, which was pressurized by falling oil prices. Nigeria’s growth in real GDP has also fallen, in sympathy with global crude oil prices, as has FDI. In 2014 for example, FDI ― of which Nigeria's Foreign Exchange Reserves (2014 - 2015)the oil and gas sector takes a significant proportion ― fell by about 16% from the previous year, according to World Bank data, following slumping oil prices.

    The impact has been palpable. Many state and local governments are having great difficulty paying salaries and meeting other recurrent expenditure obligations with little left for embarking on capital projects. The country’s recent banking and currency restrictions were attributed to banks’ inability to meet foreign exchange obligations.

    Nigeria - Real GDP Growth (Y-on-Y) vs Oil Price (Brent)

    The country’s president last week presented a budget of 6.08 trillion naira (about US$31 billion) for 2016 to the National Assembly. The proposed budget boasts a record increase in non-oil revenue streams. However, some analysts have been quick to point out that the country’s reference crude oil price has already fallen ― even if briefly ― below budgetary provisions and that even some of the proposed “non-oil” revenue streams depend on oil for viability.

    With the current low oil price regime projected to endure, a strategic reassessment of the petroleum sector’s business model is imperative. Continue reading  Post ID 408