Oil Production fall in July

E kaaro o, Ututu Oma, Barka da Safiya - Good morning, and a warm welcome to ThinkBusiness Nigeria, your Monday – Friday dose of commentary, contexts, and insights on business and economic news that matter to you.

The Ministers took their oaths yesterday and immediately went to their various ministries. The most enduring image was that of the Minister of FCT Nyesom Wike announcing that those that have distorted the Abuja Master Plan by building on green areas or where they should not have built are in trouble.

This happened in Lagos too, recently.

The question is who gave permission for anyone to build or construct those properties? It is those in government and it is the same set of people that will come after and demolish those properties. Governance is not a bulldozer assignment. Government should fix itself and the country will be fine.

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Markets

• The equities Market started the week on a positive note as the benchmark NGX All-Share Index (ASI) moved up 458.45 (0.71%) points to close at 65,202.41, representing a 1-week loss of 0.01%, a 4-week loss of 0.1%, but an overall year-to-date gain of 27.22%. Again, John Holt led the gainers with 9.66% share price appreciation closing at NGN 1.59 per share, followed by SCOA Nigeria (+9.4%), BUA Foods (+9.29%) and AXA Mansard Insurance (+6.85%).

• Oil prices edged higher on Monday as tighter supply reflected in fewer exports from Saudi Arabia and Russia. Brent crude was up 52 cents to US $84.83 a barrel and U.S. West Texas Intermediate crude was up 65 cents at US $81.90.

• Naira was down at both the I&E Window and on the streets. At the I&E, Naira depreciated by 2.95%, ultimately closing at a rate of N761.32 against the US dollar. Similarly, on the streets, Naira was down by 3.45%, reaching a value of N869.00 against the US dollar.

• U.S. natural gas futures gained about 3% on Monday despite forecasts for less demand over the next two weeks than previously expected.

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National Headlines

• Foreign Reserves not more than US $3.7 billion? – US investment firm JP Morgan has provided estimates that show that Nigeria’s foreign reserves initially thought was over US $30 billion could be just about 10% of that. Using the recently released audited accounts of the Central Bank of Nigeria, FMDQ and its data, the firm showed that Nigeria’s net reserves is estimated at US $3.7 billion. By accounting for International Monetary Fund (IMF) SDRs, forex forwards, security lending and currency swaps, the reserves have been heavily depleted than earlier thought. This estimate will put renewed pressure on the Naira. It follows the loan by the NNPC of US $3 billion from the Afreximbank and a renewed approach at disposing Nigeria oil and gas assets to raise close to US $20 billion in the medium term.

• Time to Work – For the 45 Ministers sworn in by the President yesterday, the task ahead is huge. Nigeria currently faces socio economic problems at a scale not seen since the return to democratic rule in 1999. Some of them had their first press conference yesterday. As they resume their first full day in office, Nigerians expectations from the government is high because of the huge problems in the country but confidence low because they have been disappointed many times before.

• 4 million barrels short in July compared to June – Nigeria is in dire straits, but data keeps showing that it cannot maintain and secure existing revenue sources. Compared to June, Nigeria’s oil production declined by 4 million barrels, from 37.5 million to 33.5 million barrels. (See news Analysis Below)

Global Headlines

• Xi Jinping arrives South Africa for BRICS summit – The Chinese President arrived South Africa yesterday seeking to bolster trade and cooperation with South Africa. Ahead of the BRICS summit that begins on Wednesday, the Chinese President is having a State visit to South Africa. Nigeria’s Vice President will also attend the summit.

• China cuts 1 year rate but left 5-year rate unchanged – As reported here yesterday that the markets expected China to cut both its 1 year and 5-year rates, the Bank of China disappointed by cutting only 1 year rate. Since the end of the zero Covid – 19 policy last year, China’s recovery has been slow as it battles property slump, weak consumer spending, and tumbling credit growth. The one-year loan prime rate (LPR) was lowered by 10 basis points to 3.45% from 3.55% previously, while the five-year LPR was left at 4.20%. The danger of further weakening the Yuan, Chinese currency, also means that the government has limited room for deeper monetary easing.

• US Mortgage rates highest in almost 25 years – Mortgage rates in the US jumped in in the US to their highest since 2000. The average rate for a 30-year mortgage jumped to 7.5% July compared to 5.5% last year. It follows the rise in interest rate by the US Fed that has reached 5.5%. It also follows the rise in bond yields. US 10-year bond yields reached 4,35%, levels last seen since 2007.

News Analysis - Oil Production fall in July

The Nigerian Upstream Petroleum Regulatory Commission data shows that oil output declined by 4 million barrels compared to June, from 37.5 million to 33.5 million barrels. Daily average production dipped from 1.28 million barrels per day (mbpd) in June to 1.08 mbpd in July.

While the country is in dire straits, this means a loss of about US $320 million or N249 billion. A key contributing factor was the surge in crude oil theft and pipeline vandalism. For instance, between July 15 and July 21, a total of 240 such incidents were recorded, concentrated in Bayelsa state—a region that happens to be one of the highest producing states.

Given the persistent rise in pipeline vandalism and crude oil theft, concerns continue to mount for the trajectory of crude oil production by the end of 2023. If this trend continues, it is plausible that the daily production could plummet to around one million barrels per day, presenting a challenging outlook for Nigeria's crucial oil sector.

This Week

• Wednesday 23^rd August 2023, Nigeria Bureau of Statistics will release Nigerian Capital Importation for Q2 2023 report. Also, the NBS will release the Selected Banking Sector Data: Sectorial Breakdown of Credit, ePayment Channels and Staff Strength (Q2 2023).

• Friday 25^th August 2023, the highly anticipated Nigerian Gross Domestic Product by Output Report (Q2 2023) will be released. The latest statistics shows that Nigeria's GDP grew by 2.31% y/y in real terms in Q1 2023, from 3.11% recorded Q1 2022, and 3.52% in Q4 of 2022.