Oil Reserves Under Threat from Climate Change? – Investors King Ltd

December 22, 2021

Climate Change is a global battle that has been fought for years now, amidst fears that lack of care for the environment could negatively impact human beings and living conditions in years to come. The oil market is also under threat from the phenomenon, as there are predictions that rising sea levels could affect oil reserves in Nigeria. 
In a study, risk consultancy firm Verisk Maplecroft discovered that climate change may lead to difficulty in Nigeria’s production of its large oil and gas reserves. Nigeria, Africa’s number two exporter, has most of its reserves in the Niger Delta region, which has a river system around it. This leaves the reserves vulnerable to possible drought and flooding due to climate change.
Apart from Africa, the report also said that the oil reserves in the rest of the world are in danger. The report cited problems like storms, rising tides and rising temperatures as possible affectors of the oil market.
An estimate of about 60 million, or a total of 40 percent of the world’s oil recoverable oil and gas reserves are under threat from the wild and volatile weather, according to the firm’s research. The most vulnerable to the attacks would include Saudi Arabia, Iraq and Nigeria.
However, Nigeria has come out to say that it has climate-related problems under control. The Minister of State for Environment, Sharon Ikeazor has said that the Federal Government of Nigeria has taken multiple steps as interventions in climate change, set to curb the problem. According to her, steps have also been made to increase the country’s resilience, to avoid strong consequences from climate change situations.
The Minister mentioned the Climate Change Bill which was passed by the National Assembly, which includes a long-term plan for the country to achieve a net zero carbon emission, national climate resilience and adequate financing for national development in the climate area.

Brent Crude Oil Drops 2 Percent to $73.48 Per Barrel on Omicron Concerns

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Surging Omicron cases dragged on global oil prices amid concerns over the negative effect of new restrictions on oil demand.
Brent crude, oil against which Nigerian oil, is priced shed $1.54 or 2 percent to $73.48 per barrel at 5:10 pm Nigerian time. The U.S. West Texas Intermediate (WTI) dropped by $1.54 or 2 percent to $70.87 a barrel.
Oil prices drop after Mette Frederiksen, Prime Minister of Denmark, announced that her government would propose new restrictions to limit the spread of Omicron cases following a report from Denmark’s Health Minister Magnus Heunicke that the country has registered 11,559 new Omicrown cases, with 2,550 cases recorded in the last 24 hours.
This was after South Africa and the United Kingdom reported a jump in the number of new omicron cases in the last two days.
Oil prices are “dragged lower as trading becomes more risk-averse at the end of the week. It had rebounded well over the last couple of days but has run into resistance at the upper end of its recent range, around $73. We could see further consolidation around $70 in the coming sessions as we learn more about omicron, what restrictions it will bring, and whether OPEC+ will react,” said Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA.
In the United States, the story is not different, companies are now halting plans to get workers back to offices to curb the spread of the virus.
“Messages of caution and warnings of a worsening COVID wave are starting to ring louder with the approach of the year-end holiday season, dampening market sentiment,” said Vandana Hari, energy analyst at Vanda Insights.
“Crude may remain in a holding pattern, albeit with plenty of price volatility around the mean, in holiday-thinned trading over the next couple of weeks.”

Nigeria was unable to obtain any revenue from oil exports throughout the month of October, despite recording an average daily oil production of 1.4 million barrels in the month of September.
The Nigerian National Petroleum Corporation (NNPC) revealed this in the corporation’s report to the Federal Account Allocation Committee (FAAC) which was released over the weekend. The report, which was published on the corporation’s website confirmed that even though it had produced more than 1 million barrels of crude oil, it was unable to sell the oil.
This reminds one of 2019, where more than 104 million barrels of oil which were lifted were unable to be accounted for by the NNPC in an auditor general report that was released recently. The NNPC revelation is similar to the auditor general’s 2019 report, concerning why there was no record of any money received for more than the 104 million barrels of oil that had been lifted.
A part of the report reads: “Sales receipt: No Crude Oil export revenue for the month of September 2021.”
The report went ahead to note that in total, the NNPC crude oil lifting of 11.49 million barrels in Export & Domestic Crude in September 2021 saw an increase of 98.5 percent relative to the 5.79 million barrels lifted in August 2021.
In spite of the lack of revenue for the NNPC through oil exports, the report stated that a sum of N252.96 billion was the Gross Domestic Crude Oil and Gas revenue for October 2021.
In the report, NNPC stated that Domestic Gas and other receipts throughout the month sat as N6.78 billion. Domestic Gas (NGL) in the month was just over N4 billion.
Concerning expenses, the NNPC stated that strategic holding cost, pipeline repairs across the month of September took a total of N7.75 billion. It broke the expenses down, stating that the pipelines came at a cost of N143 million and a value shortfall of N163 billion.

Crude oil rose on the back of Saudi Arabia’s announcement that it has increased January oil prices to Asian and US customers.
Brent crude oil, a global benchmark against which Nigerian oil is priced, appreciated to $71.90 a barrel on Monday at 12:12 pm Nigerian time after plunging to as low as $65.73 a barrel on Thursday.
Saudi Arabia on Sunday announced it had raised January official selling prices for all crude oil grades sold to Asia and the United States by up to 80 cents from the previous month.
This was on the same day reports from South Africa suggested that Omicron was less harsh than previously thought. Still, it was uncertain why one of the world’s leading oil producers raised prices at a time OPEC + is upping production by 400,000 barrels per day and when uncertainty surrounding covid could erode global demand and force existing buyers to embrace competing grades.
“I am struggling to construct a positive narrative out of Saudi Arabia raising prices, especially as it makes competing grades more appealing to their client base. The best I can do is that Saudi Arabia feels confident raising prices despite higher OPEC+ production because it believes omicron is a storm in a test tube and that the global recovery will not be derailed. The South African reports have reinforced that sentiment,” said Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.
US equity and Asian assets responded positively to Omicron’s report this morning, curbing further decline in the global assets from Friday’s decline. However, there is no certainty on the virus given the sample size. More research is needed to better understand the characteristics of the Omicron.
US Fed is now expected to raise interest rates twice in 2022 if it will curtail escalating inflation rate and compel more people to go back to work. Investors are now waiting for Friday’s consumer price report.

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