Crude Oil Slips to Below $40 as Iran Dashes Hopes of Output Freeze

Source: THISDAY LIVE

Despite the pledge by Saudi Arabia to cooperate with other members of the Organisation of Petroleum Exporting Countries (OPEC) to stabilise the oil market, the price of crude oil fell by almost three per cent yesterday after Iran dashed hopes of a coordinated production freeze in the nearest future.

Saudi Arabia and several fellow OPEC members had agreed with non-OPEC Russia to freeze output at January levels in an attempt to prop up prices.

President Muhammadu Buhari, who was in Doha, Qatar early this month, also told OPEC and non-OPEC producers that low oil prices were no longer acceptable.

During a bilateral meeting with the Emir of Qatar, Sheikh Tamim Bin Hammad Al-Thani, Buhari spoke on the need for the members of OPEC and Gas Exporting Countries Forum (GECF) to cooperate to stabilise the oil market for the benefit of their people.

A recent Saudi cabinet statement also disclosed that the kingdom was working towards stability in the oil market and would remain in contact with all main producers in an attempt to limit volatility.

The renewed cooperation between OPEC and non-OPEC members had led to a rise in the price of oil above $40 per barrel but that was still a fraction of the $115 per barrel of 20 months ago.

But following Iran’s revelation on Sunday that it would only join the discussions for cooperation after its output has hit 4 million barrels per day (mbpd), the price of oil fell by about three per cent yesterday.
Iran’s oil exports are due to reach 2mbpd in the Iranian month that ends on March 19, up from 1.75 million in December 2015, according to Reuters.

Iran’s position has returned bearish sentiment over a supply glut that has sent prices crashing in the past 20 months.
Global benchmark Brent crude, which hit a 12-year low of $27.10 per barrel in January and had risen above $40 this month, fell back monday to below $40 a barrel, trading at $39.27, while US crude was down $1.09 trading at $37.41 a barrel.

Iran’s Oil Minister, Bijan Zanganeh was quoted as saying on Sunday that it would join discussions after its output reached 4mbpd.

Reuters reported that Zanganeh met Russian counterpart Alexander Novak in Tehran yesterday but talks focused on long-running discussions about an oil and gas swap mechanism.

According to the Shana news agency, Zanganeh said Iran and Russia could cooperate on the swap, which would see Russia send oil and gas to northern Iran in return for Iranian supply to Russian customers in the Gulf.

Saudi Arabia appeared to have stuck to a preliminary deal reached with some other producers to freeze output, as its crude production held steady in February at 10.22 million barrels per day (bpd), an industry source told Reuters.
OPEC members and non-OPEC producers are likely to meet again in mid-April in Doha to discuss freezing output, OPEC sources told Reuters.

With Iran’s position, the scheduled March 20 meeting in Russia, which was part of an earlier plan, now looks unlikely.

Meanwhile, fuel shortages persisted across the country, as the Nigerian National Petroleum Corporation (NNPC) became the sole importer of petrol into the country.

THISDAY gathered that with the low fuel import allocation given to the private marketers by the Petroleum Products Pricing Regulatory Agency (PPPRA) for the first quarter of 2016, all the marketers now depend on products imported by the corporation.

Private marketers, who traditionally imported 60 per cent of domestic requirement, were only allotted 22 per cent in the first quarter, allocated that they have since exhausted, thus resulting in the current shortages.
PPPRA approved the importation of 1.5 million tonnes of petrol for the private marketers and the NNPC for the first quarter, with the corporation getting 78 per cent.

With the tight supply, only major marketers and a few independents, that sourced petrol from the NNPC or those with throughput agreements with the corporation, were selling petrol in their depots at the weekend.

For instance, of the 39 private marketers and depot owners that use to participate in fuel importation under the Petroleum Support Fund (PSF), only 12 were selling petrol sourced from NNPC at the weekend.

Investigations by THISDAY showed that of the 12 marketers, Forte Oil, Conoil, Mobil, Oando, MRS, Total and NIPCO are major marketers, while Zenon, Folawiyo, Capital Oil, Aiteo and Bovas were the only independents and depot owners with petrol stock.
THISDAY gathered that majority of independent marketers and depot owners did not have petrol in their depots at the weekend.

Those with dry depots included Integrated Oil, Eterna Oil, Heyden Petroleum, Rahamaniyya, Sahara Energy, Techno Oil, AA Rano, Ascon, A-Z, D-Jones, Fatgbems and Index Petroleum, among others.

Some of the affected marketers told THISDAY that they had exhausted the little allocations given to them by the PPPRA.

“In the fourth quarter of 2015, I was given an import allocation of 90,000 metric tonnes and I did 110,000 metric tonnes. So nobody would accuse me on non-performance. But in the first quarter of 2016, I was given 40,000 metric tonnes, which I exhausted within the first month. The same goes for other marketers. So the product you see in the system belongs to the NNPC,” said one of the depot owners, who did not want his name in print.

It was gathered that another challenge impeding imports and has fuelled the shortages, is the scarcity of foreign exchange, prompting PPPRA to slash the import allocations of the private marketers because of the challenge of sourcing forex.

However, NNPC which has cornered a large chunk of the first quarter import allocation because of its capacity to access forex, does not have adequate reception facilities for its imported product.

Though the corporation takes delivery of enough cargoes of petrol to meet domestic demand, the absence of logistics and storage depots for its product makes it difficult for these vessels to discharge the product for distribution.
While the imported cargoes wait at the high seas, scarcity of petrol continues to bite harder on Nigerians who cannot access fuel from filling stations.

THISDAY also gathered that the tight fuel supply situation has been further aggravated by the high incidence of vandalism along the pipelines linking the Atlas Cove-Ejigbo-Mosimi-Ibadan-Ore-Ilorin depots, referred to as System 2B, and is the most active fuel distribution network that accounts for 60 per cent of supply in Nigeria.

Under System 2B, imported products are stored in NNPC’s Atlas Cove depot in Lagos from where they are pumped to Ejigbo depot in Lagos, Mosimi Depot in Ogun State, Ibadan Depot, Ore Depot in Ondo State and Ilorin Depot for tankers to lift from those depots.

But vandals and oil thieves have damaged the connecting pipelines, thus putting excessive pressure on the private depots in Lagos as tankers from all parts of the country rely on Lagos.

In order to address the problems, a meeting of the depot owners and marketers, which was convened at the PPPRA headquarters in Abuja recently resolved that the allocation formula would be changed in the second quarter import allocation round to give private marketers higher import volumes.

Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, recently disclosed that he had initiated consultations with the Central Bank of Nigeria (CBN) to help marketers access forex to import petrol.
The minister said the move would help ease access to forex, which hampers the ability of marketers to bring petrol into the country.

He said the inability of private marketers to import was beginning to wear down the capacity of the NNPC to meet the country’s fuel consumption officially put at 40 million litres per day.