Tuesday, 21 May 2013
This article speaks to the situation in Nigeria not about other OPEC nations.
This article comes in the form of an interview with a friend of mine that is a Joint Venture Operator. Those are the companies that load vessels, this one specifically at the Bonny Terminal.
First a little preliminary information:
The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of twelve oil-producing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
According to its statutes, one of the principal goals is the determination of the best means for safeguarding the organization’s interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.
OPEC transactions are transactions by the Nigerian government on behalf of the 65 appointed/approved companies by the Federal Government of Nigeria.
The approval is from the NNPC Abuja and signed by the Minister of Petroleum.
Off-OPEC is transacted at the Bonny Terminal on behalf of the government and is legal in Nigeria. Doing so breaks OPEC rules, hence we have Off-OPEC police that monitors/sanction countries that do Off-OPEC sales. As Off-OPEC prices are governed by supply and demand they are seen to be increasing the volume of oil available worldwide thereby dropping the price fixed by OPEC.
Every country in OPEC does Off-OPEC sales, but they all do it underground through various companies (Fiduciary companies) which cannot be traced to the government, hence in Nigeria it is done at Bonny terminal NOT in the NNPC towers in Abuja.
JS: Who decides whether a transaction is going to be OPEC or off-OPEC?
JVO; Government, as all oil belongs to government.
JS; when that decision is made then the product is made available either through the Bulk Equity Account or to an allotment holder?
JVO; Every allocation or allotment outside of the 65 companies I mentioned above are Off-OPEC! Either Bulk Equity or Allotment to holder, they are all Off-OPEC.
JS; Just a little clarification here, Allotment holders receive an allotment, which is a fixed amount of oil they can sell on a quarterly basis. They receive an authority to sell (ATS) letter that defines how much oil they have to sell. When they sell that allotment they may not be able to extend the allotment to handle additional sales they have made to refineries that they have a relationship with. Their authority ends there.
NNPC approved Fiduciaries are always selling out of the Bulk Equity Account and even though they also can get an ATS it is somewhat expandable. This is because Fiduciaries are actually given authority to negotiate on behalf of the NNPC. If you have a qualified buyer you might as well sell him oil. I know this is the case because we are presently negotiating with an Allotment holder to buy oil through one of our Fiduciaries. Their allotment ran out and now they have to buy from someone that has the authority to sell but whose allotment will not run out – so to speak.
JS; Do NNPC Approved Fiduciaries (NAF) always have joint allocations that they can all sell or do they occasionally get an allocation that is solely for that NAF to sell?
JVO; NAF don’t always have joint allocations but depending on situations they can have it as the one you have seen, it depends on the transaction at hand.
JS; Is the Bulk Equity Account always there to be tapped by NAFs with a phone call and a banking instrument?
JVO; NAF don’t actually have limit on what they can sell, they can sell as much as the demand from buyers once there is a banking instrument.
JS; what is the distinction between a NNPC Approved Fiduciary and an allotment holder?
JVO; the difference is just in name, as they are all Off-OPEC!
JS; Can an Allocation Holder sell out of the Bulk Equity Account or do they need to go through a NNPC Approved Fiduciary?
JVO; they are all Off-OPEC and can sell anything.
As a clarification, the allotment holder that we are dealing with is a brokerage house so they are actually a buyer that is reselling to the Refinery. My guess is that they used their allotment to establish a relationship and then the refinery had a greater demand so they have to dip into the Bulk Equity Account as a buyer in order to meet the refinery’s increased demand.
Once they get all the documentation they have requested this will likely be an easy sale. It is nice working with pros that know how to get the job done.
Thursday, 16 May 2013
When the global growth forecast for 2013 was published in July last year at 3.2%, the estimate seemed rather conservative. However, almost a year later, the forecast remains unchanged, although with risks currently skewed to the downside. The on-going challenges to the global economy have also been highlighted in the IMF’s most recent World Economic Outlook, which has reduced its forecast for 2013 to 3.3%, from a 4.1% forecast a year ago.
While at the beginning of the year it looked as if further momentum was building up, the continued decline in the Euro-zone, the significant deceleration in the first quarter in some of the Asian economies and the recently acknowledged slow-down in Russia all have the potential to again push growth down slightly further. This recent deceleration has also become obvious in the continued slowdown in global industrial output, which began in May 2010 and has been mainly due to lower growth in the industrialized economies (Graph 1).
Some regions, however, could provide upside-potential. This would mainly come from the US, where the most recent progress in the labour market has provided some indications of Economic improvement. At the same time, uncertainty prevails given the emerging impact of the sequester cuts and on-going budget negotiations. If challenges can be successfully overcome, then this could lift US growth beyond the current forecast of 1.8%.
In the Euro-zone, a meeting of the European Council at the end of May is expected to discuss easing some austerity measures. This might reduce the 0.5% economic contraction expected for this year. In Japan, it is still too early to tell if the recently announced monetary stimulus will be accompanied by additional fiscal measures to further lift the current growth forecast of 1.1%.
In the major emerging economies, some further stimulus measures might provide upside support. However, given rising inflation levels, central banks and policymakers alike will be careful in pursuing such a policy. China is likely to consider the 1Q13 growth level of 7.7% as reasonable, as it is higher than their official forecast for the year of 7.5%, although below the MOMR forecast of 8.0%. India has continued lowering its key policy rate in April in order to provide some momentum to its economy, which is forecast to grow at around 6.0%.
However, elsewhere, the most recent data indicates a more severe slow-down in 1Q13 in many of the Asian economies and the latest PMIs for April point to a continued deceleration (Graph 2). Given the unbalanced growth levels, various economic challenges, and the significant impact of the unprecedented increase in monetary supply, the global economy has become more complex in the recent years.
Monetary policies in particular have had an effect on foreign exchange levels, foreign investments and rising asset markets, however, the full consequences are not yet clear.
Although world GDP growth has remained unchanged from the initial forecast, substantial revisions have been made to the economies of some regions since then. Consequently, regional oil demand growth projections have been revised, with upward revisions in Emerging and Developing Countries and sharp downward changes in the OECD economies, mostly in Europe and Asia Pacific. At the same time, total world oil demand growth in 2013 has remained broadly unchanged over the forecasting period at 0.8 mb/d.
However, there are a number of downward risks to the forecast for the remainder of the year. Given the prevailing economic situation and resulting downward risks to global oil demand growth, along with the potentially significant increase in non-OPEC supply, oil market developments warrant close monitoring over the coming months.
Wednesday, 15 May 2013
The OPEC Reference Basket dropped for the second-consecutive month in April, declining by $5.39 or more than 5% to stand at $101.05/b. Year-to-date, the Basket declined by $10.22 or 8.7% from the same period last year. Crude oil futures took a substantial hit again in April, with Brent falling 5.6% to July 2012 levels with a monthly average of around $103/b. Nymex WTI edged 1% lower to average $92/b. A vulnerable global economy combined with the prospect of moderate demand growth, rising crude production, and high stocks sent prices tumbling. Crude oil also lost ground amid cross-commodity and equity market herd behavior as momentum trading led to a selloff that sent commodities, such as gold and silver, plunging by record levels. The latest CFTC and ICE commitment of traders’ reports confirmed the bearish investor sentiment towards oil in April.
However, the Basket has shown some improvement since the start of the month to stand at $101.67/b on 9 May.
World economic growth: is forecast at 3.2% in 2013, following growth of 3.0% in the previous year, unchanged from the last report. The US housing and labour markets continue to show a recovery, but given persistent fiscal uncertainties, the US growth forecast for 2013 remains unchanged at 1.8%. Japan’s forecast has been revised to 1.1% from 0.8%, on support from recent monetary stimulus. The Euro-zone’s forecast remains unchanged, with an expected contraction of 0.5%. Slowing exports have impacted China’s economy and growth has been revised to 8.0% from 8.1%, while India’s forecast is unchanged at 6.0%. A fragile recovery in the global economy has been visible since the beginning of the year, but momentum has started slowing again and growth risks are skewed to the downside
World oil demand: growth in 2013 remains unchanged from the previous report at 0.8 mb/d, broadly in line with the estimate for 2012. However, the performance of the first quarter of this year has been revised down based on actual data. A large portion of the growth is seen coming from China, with a 0.4 mb/d increase. The other non-OECD countries are expected to add some 0.8 mb/d, with the Middle East region accounting for around 0.3 mb/d, followed by Other Asia and Latin America with growth of about 0.2 mb/d each. In contrast, OECD demand is expected to see a contraction of around 0.4 mb/d, which is slightly less than in 2012.
Non-OPEC: supply is forecast to grow by 1.0 mb/d in 2013, following an increase of 0.5 mb/d in 2012, broadly unchanged from the previous report. OECD Americas remain the driver of growth in 2013, while OECD Europe is seen experiencing the largest decline. OPEC NGLs and nonconventional oils are expected to increase by 0.2 mb/d in 2013. In April, total OPEC crude oil production, according to secondary sources, was estimated to average 30.46 mb/d, an increase of 0.28 mb/d over the previous month.
Demand for OPEC crude: in 2012 is estimated at 30.2 mb/d, following an upward revision of 0.1 mb/d from the previous report and broadly unchanged compared to the previous year. In 2013, demand for OPEC crude is expected to average 29.8 mb/d, representing an upward revision of 0.1 mb/d from the previous report and a 0.4 mb/d decline from last year.
Sunday, 12 May 2013
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