Oil Prices Shed Over 2%, As Investors Lose Confidence In OPEC+ Cutbacks

By Taiwo Adekeye, FMVA
On Friday, oil prices witnessed a decrease of over 2%, driven by investor skepticism regarding the extent of OPEC+ supply cuts and concern about the sluggishness in global manufacturing activity. At $78.88 a barrel, Brent oil futures for February ended the day down $1.98, or 2.45%. West Texas Intermediate (WTI) oil futures for the United States fell $1.89, or 2.49%, to $74.07 a barrel, however, Brent saw a weekly loss of around 2.1%, while WTI saw a loss of more than 1.9%. On Thursday, OPEC+ members decided to roll over the 1.3mmbpd of existing voluntary cutbacks by Saudi Arabia and Russia, bringing a total of almost 2.2 mmbpd of oil off the world market in the first quarter of 2024. Since late September, oil prices have dropped from over $98 per barrel due to concerns about the impact of slow economic development on fuel consumption. OPEC+, which supplies over 40% of the world’s oil, is lowering its supply.
South Africa: The South African rand strengthened following Powell’s remarks.
On Friday, the ZAR gained strength against the USD, recovering from its losses the previous day. This came after Jerome Powell, the Chair of the U.S. Federal Reserve, expressed a cautious approach to interest rates, stating that the Fed would proceed carefully. The rand was 1.2% higher than its previous finish at 18.6150 versus the dollar at 1619 GMT on Friday. Following Powell’s remarks, the dollar fell and was last trading flat versus a basket of world currencies. Powell stated that the Federal Reserve will continue to exercise caution in its future monetary policy choices, but he also stated that it was premature to consider the Fed’s war on inflation to be over. On the stock market, the all-share index and the Top-40 index finished the day around 0.2% higher. The benchmark 2030 government bond in South Africa remained constant, with a yield of 9.980%.
Ethiopia: Ethiopia and UAE-based AMEA Power ink a $600 million wind project agreement.
Ethiopia’s finance ministry said on Sunday that the country has inked a $600 million deal with AMEA Power of the United Arab Emirates to build a 300 megawatt wind farm. The country in the Horn of Africa is relying more on renewable energy to increase its power coverage, which the World Bank estimates will be 50% of the population in 2020, leaving 60 million people unconnected. According to a statement from the government, the 18,000-acre Aysha wind farm would employ 2,000 people both during construction and operation. AMEA Power, a Dubai-based company, specializes on renewable energy projects in growing areas such as the Middle East and Africa. According to the finance ministry, when the Aysha project is finished, it will be Ethiopia’s largest wind power producing facility.
Nigeria: NAFEM closing rate falls by 11.39% to N927.19/$, continuing the Naira’s downward spiral.
On Friday, the NGN closed at a fresh low of N927.19 per USD on the official market and N1165 per dollar on the parallel market. Data from the NAFEM, where forex is legally exchanged, indicated that the native currency fell 11.39% to settle at N927.19 to USD at the conclusion of business on Friday. In a similar vein, the NGN experienced a decline in the parallel forex market, where foreign exchange is traded unofficially. The exchange rate depreciated by 0.43%, reaching N1165/$1, while peer-to-peer traders quoted approximately N1159.62/$1. For the naira to regain its strength, the CBN should implement de-dollarization measures. This could involve declaring any local transactions conducted in US dollars as illegal. Additionally, the sale of crude oil to local refineries should be conducted in Naira instead of dollars.
Brazil: Brazil’s involvement in OPEC+ aims to discourage oil producers from relying on fossil fuels.
Brazil’s membership in the OPEC+ group of oil-producing nations, according to President Luiz Inacio Lula da Silva of Brazil at COP 28, the UN climate change conference in Dubai, said its intention is to persuade other countries to move away from the usage of fossil fuels. On Thursday, Brazil hinted that it was close to joining the club of 23 oil-producing nations known as OPEC+. Alexandre Silveira, Brazil’s minister of mining and energy, declared that its intention is to use oil revenues to finance clean and renewable energy, and we will lead oil-producing countries to accelerate the energy transition. South America’s top oil producer, Brazil produces 4.6 million barrels of oil and gas per day, of which 3.7 million are crude. Brazil’s potential involvement in a coalition that might decide on oil production cuts among its members would be contentious. This is because Brazil operates as a market economy, and certain entities, including the state-run oil company Petrobras, are publicly traded on the stock exchange.
Chile: October saw a 0.3% increase in Chile’s economic activity index, offsetting a fall in mining.
In October, Chile’s IMACEC economic activity index increased by 0.3% compared to the previous year, as reported by the central bank on Friday. This figure fell slightly below the anticipated forecasts. The reason for the outcome was attributed to a little rise in “the manufacturing and service sector, but partly offset by the decline in mining. The yearly reading represents the index’s fourth increase this year; prior positive readings occurred in January, July, and September. The nation’s economy has slowed down following a rapid recovery from the COVID-19 pandemic. This recovery led to an increase in inflation, prompting the implementation of robust monetary restrictions.
India: The need for houses in India is driving the construction sector.
This week’s GDP figures provided even more evidence that India was experiencing a massive housing boom, raising hopes that the sector will continue to drive the country’s economy for years to come. The construction sector expanded by 13.3% in July-September compared to the same period the previous year. This growth marked an improvement from the 7.9% recorded in the preceding quarter and represented its strongest performance in five quarters, as indicated by the data released on Thursday. This contributed to India surpassing expectations with a growth rate of 7.6%, positioning it among the world’s fastest-growing major economies. In contrast, Western economies have faced challenges due to elevated interest rates and energy prices, while China has grappled with a debt crisis in its property sector. The most populated country in the world had a deficit of almost 19 million urban housing units last year; government predictions indicate that by 2030, that number will have doubled.