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Spike in Oil prices raises prospect of foreign reserve accretion again

By on June 23, 2014

As the reports of the fierce battle in Iraq sent shivers down the spines of other members of international community with the attendant increase in the prices of crude oil at the international market, analysts said Nigeria stands to gain from the new price regime in the oil market.
Although the Iraqi government forces, at the weekend reportedly battled Sunni rebels for control of the country’s biggest refinery, the gallantry of the country’s military forces still failed to reassure the international community of the capability of the government to prevent disruption to the international oil market.

Consequently, oil prices, including  Nigeria’s grade, Bonny Light, reached new heights at the weekend, a development that Nigeria oil industry operators see as another opportunity to further grow the nation’s foreign reserves, which hit $37.093 billion as at last week.
For instance, Nigerian grade of crude oil, Bonny Light was sold at the rate of $115.9 per barrel, while other grades like Brent and WTI were sold for $114.26 and $105.97 per barrel, respectively.

The Federal Government had benchmarked crude oil price at $77.5 in the 2014 budget but concerns were being raised over initial depletion of the nation’s reserves owning to regular intervention at the foreign exchange market.

The growth of the foreign reserve account had been constrained by regular intervention of the Central Bank of Nigeria at the foreign exchange market.

For instance, in the month of June so far, a total of $1.095 billion has been sold at the twice Retail Dutch Auction Market with the corresponding stability in the value of naira.
The nation’s crude oil production based on secondary sources,  increased by 11 barrels per day from the 1.87 million barrels per day (mbpd) it recorded in April to 1.88mbpd in May, according to the Organisation of Petroleum Exporting Countries (OPEC) report for the month of June.
Economic affairs commentators said Nigerians should expect a profound jump in the external reserves because the country stands to gain from turmoil in the Middle East.

Other countries, which witnessed significant increase in crude oil production, include Angola with an increase of 57.4 barrels per day; Iran, 55bpd; United Arab Emirates, 13.2bpd and Saudi Arabia with 13.2bpd.
The report stated that total OPEC crude oil production averaged 29.76 mbpd in May, an increase of 142 tbpd over the previous month.
OPEC stated: “Africa’s oil supply is forecast to average 2.51 mbpd in 2014, an increase of 90 tbpd from 2013, and flat from the previous MOMR. However, a minor downward revision was made for 1Q14 output on the back of a downward revision by 12 tbpd in Africa other’s oil production.

“On a quarterly basis, Africa’s supply is expected to average 2.52 mbpd, 2.51 mbpd, 2.51 mbpd and 2.51 mbpd, respectively. Oil production in Chad and South Africa are expected to remain steady in 2014, averaging 0.13 mbpd and 0.18 mbpd, respectively. Congo’s oil production and Gabon’s output are forecast to decline by 10 tbpd each to average 0.25 mbpd and 0.22 mbpd, respectively.

Reports have it that so far; the turmoil has only affected a small slice of the oil infrastructure and hasn’t touched any of the major oil fields in the south (which produce 75 per cent of Iraq’s oil). But there’s still the potential for things to get much worse.
Iraq has the world’s fifth-largest proven oil reserves.

But the country has only recently begun churning out significant amounts of crude oil again (production dropped sharply after the 2003 US invasion).
In April 2014, Iraq was producing an estimated 3.3 million barrels per day — equal to about 4 per cent of global supply. And the country was expected to keep ramping up production, with plans to produce at least 5 million barrels per day in the years to come.
But the fighting has threatened some of Iraq’s other oil infrastructure, including a pipeline that can deliver 600,000 barrels of oil per day from Kirkuk to the Turkish port city of Ceyhan. The pipeline had been damaged by a 2013 attack and was offline receiving repairs — that work has now been halted.
There’s also potential for things to get a lot worse. If the conflict spreads further into the Kurdish regions, that could disrupt operations in the large Kirkuk oil field near the city of Mosul, which now produces around 260,000 barrels of oil per day — and accounts for one-sixth of the country’s proven reserves. Iraq had plans to invest heavily in that oil field in the years ahead, and that’s a lot harder now.

 

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One Comment

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