Prices of fuel are expected to see a drop of between 2 and 4 percent. The Institute of Energy Security (IES), has predicted.

Fuel prices went up in the last pricing window in the middle of October bringing a litre of both petrol and diesel to 5 cedis, 21 pesewas.

Explaining the reasons behind the prediction, the IES said the fall in Brent crude prices,  and finished products on the international market, as well as the cedi’s respectable gains against the dollar could lead to prices dropping at the pumps.

By this, the IES is optimistic the drop in the prices of fuel will bring some relief to Ghanaians at the pumps in the first pricing window in November.

Speaking to Citi Business News, Research Analyst at the IES, Mikdad Mohammed said they expect some OMCs to be influenced by the Price Deregulation policy to effect reductions beyond the projected margin.

“Unlike the previous window where we have had the depreciation of the cedi lead the increment, this particular window has had two major positive news. IES economic data show that we had an appreciation of around 2.4 percent from the cedi against the dollar,” he said.

“For Brent crude, we have had a reduction of about 5 percent and finished products have now come down too. When you take gas oil for example, it has come down by about 5 percent, gasoline has also come down to beyond 2 percent. It is the cumulative effect of all of these indices that IES foresee a reduction in prices from the current 5cedis, 21 pesewas to about 5cedis, 10 pesewas” he added.

Background

The window under review saw prices of Gasoline and Gasoil go up as the Institute projected.

Average prices of Gasoline and Gasoil which was GH¢5.70pesewas per litre increased by 0.14pesewas to sell at ¢5.21 pesewas.

Prices of fuel hit 5cedis for the first time in the second pricing window in September.

This was largely due to the depreciation of the cedi.

Some drivers expressed their displeasure over the increase in fuel prices for the window and called on government to intervene.

—citibusinessnews

The Chief Executive Officer of the Chamber of Bulk Oil Distributors (CBOD), Senyo Hosi, has been honoured with the Osagyefo Young Leadership Award at the 2018 Ghana Energy Awards for his outstanding contributions towards the growth of Ghana’s oil and gas industry.

The ceremony, which took place at the Movenpick Ambassador Hotel, saw many key industry players and influencers awarded for their efforts in the sector over the year.

The citation accompanying the award acknowledged Mr Hosi’s leadership and his contribution to the growth of industry across the continent.

“This august honour is in recognition of your outstanding posturing as one of Africa’s most innovative and developmental thought leaders in the Petroleum Trading and Distribution sector; having contributed immensely to the economic growth of Africa. You have been instrumental in the development of and implementation of major policies in the Ghanaian energy sector, such as, the deregulation of the downstream petroleum sector, low sulphur fuel and the conceptual development and rationalization of the Energy Sector Levies Act and its consequent debt management interventions.”

“Through your unparralled leadership skill, you have laid a very strong foundation for the future prosperity of the Ghana Chamber of Bulk Oil Distributors (CBOD) and a key factor in the development of the economies of Africa at large,” the citation stated. 

The Director of Power Generation and Transmission at the Ministry of Energy, Mr Solomon Adjetey presented the award to Mr Hosi at the colourful ceremony.

Speaking to Graphic Online afterwards, Mr Hosi said the award was quite humbling.

“I have always believed in Nelson Mandela’s charge on us to lead from behind and as such my focus has been more focused on service to my country. It is however humbling to realise that the effort you make in the quiet is recognized and brought to the fore.”

“My humble achievements have not been realized on my own accord if I am seen today it is because I stand on the shoulders of many great people – namely my staff, my family, friends and public officials I work with across all governments.” 

This award continues a recent period of success for Mr Hosi after he was named Impact CEO of the year by the Africa Leadership Magazine in 2017 as well as the Oil and Gas Personality of the year by the Offshore Africa Magazine two years earlier.

He also picked up the honours for the Most Outstanding Oil and Gas Personality (downstream)  of the year 2016 in the Oil and Gas Ghana Industry awards in 2016.

This year’s awards ceremony was under the theme: “Sustainable Energy For A Ghana Beyond Aid”

About Senyo Hosi

Mr. Hosi is the first Chief Executive Officer of the Ghana Chamber of Bulk Oil Distributors.

He is a finance and economic policy analyst with management experience across varying industries including downstream petroleum, industry advocacy, public policy development, finance, logistics and commodity trading.

He holds an MBA in Finance and an MA in Economic Policy Management from the University of Ghana.

He has been instrumental in the development and implementation of major policies in the Ghanaian energy sector, notably, the deregulation of the downstream petroleum sector, low sulphur fuel and the conceptual development and rationalisation of the Energy Sector Levies Act, and its consequent debt management interventions.

He is an advisor to the Ministry of Energy and serves on various public and corporate boards including, the Ghana Highways Authority, the Private Enterprise Federation, Legacy Bonds Limited and NDK Capital Ltd.

Advocacy

Mr Hosi’s outright advocacy, backed with solution oriented policy analysis has made him a constant reference for policy proposals by both the public and private sectors.

Together with his fine lobbying skills, he has become an industry leader from behind.

Mr Hosi has effectively managed competing interests of 30 oil companies in the Chamber to collectively work towards driving sustainable policies within the industry.

He is a key resource person for major regional downstream platforms like OTL Africa, Argus Media Road Conference, Africa Oil and Gas Summit among others.

The Chief Executive Officer of the Ghana Chamber of Bulk Oil Distributors Mr Senyo Hosi has been honoured with the Osagyefo Young Leadership Award at the 2018 Ghana Energy Awards held in Accra.

Mr. Hosi was honoured for his outstanding efforts in the Petroleum Downstream sector.

The Ghana Energy Awards is aimed at acknowledging innovation and excellence in the energy sector.

–
Angela Osei-Badu
CBOD

As part of its Corporate Social Responsibility, the Ghana Chamber of Bulk Oil Distributors (CBOD) has sponsored the Sompahemaa Foundation founded by Mrs. Irene Kyei-Mensah Bonsu to organize a health screening for about 1,000 people in the Suame constituency in the Ashanti region.

CBOD supported the event with an amount of GH¢ 10,000.The exercise comprised free dental screening, hypertension, hepatitis B, prostate cancer, breast screening, blood pressure and sugar level and eye screening.

The exercise, which was to launch the Sompahemaa foundation was highly patronized by the aged and the youth of Suame, Makro, Bremang, Tarkwa, and Kronom.

There were available drugs for the participants but those who needed immediate attention were referred to the Komfo Anokye Teaching Hospital.

–
Angela Osei-Badu
CBOD

The Ghana Chamber of Bulk Oil Distributors (CBOD) has provided GH¢3,700 support to a nine-year-old boy to undergo eye surgery at the Korle-Bu Teaching Hospital.

The surgery, accommodation, food, laboratory tests and other incidentals would cost GH¢3,500 plus an additional GH¢200 to be used as transportation.

Evans Tetteh Sakplavi, a class two pupil, was earlier this year diagnosed with bilateral cataract, an illness, which causes visual impairment.

Mr Richard Kissi, the Chief Accountant of CBOD presented GH¢3,700 cash to the boy’s mother, Mrs Rosina Buer at the premises of the Korle-Bu Teaching Hospital on Wednesday.

Mr Kissi said the Chamber was moved by a graphic online publication asking for support for Master Sakplavi and decided to assist.

Mr Kissi was assisted by Miss Angela Osei-Badu, an official from CBOD, was also present at the short ceremony.
An emotional Mrs Buer expressed gratitude to CBOD for coming to her son’s aid at a time she thought all hope was lost.
She was also grateful to graphic online for seeking public support for her son.

The paper is a speech delivered by Senyo K. Hosi in October 2018 at the Africa Development and Investment Convention (ADIC 2018) in Zurich, Switzerland. The paper interrogates the ‘Africa rising’ phrase and explores whether Africa is rising with its people. It assesses challenges Africa faces with its sustainable development and proposes a way forward with a view on how politics, industry and economic partners should be positioned.

The map of middle- and upper-income countries in Africa looked like this in 2003 (15 years ago). Fig 1.

Today it looks like this (Fig 2)

These images are quite telling in the Africa Rising narrative which has become quite a common and attractive phrase, used by analysts and politicians alike. This change in the income status of African countries has legitimised the reference to them as African lions (analogous to Asia’s Tigers). The entire phenomenon is also sometimes referred to as the African Renaissance.

Figure 3 above shows that before 2000, economic growth rates for Sub-Saharan Africa were largely below the global growth rates but the trend was reversed at the turn of the millennium. Source: World Development Indicators

A look at Sub-Saharan Africa’s GDP performance since 1961 gives further credence to the narrative. As can be observed in the diagram above, Africa has largely out-performed the World since the turn of the millennium. This continuous streak of good performance is unprecedented. Africa is truly rising, and the future seems to beckon.  Africa obviously is the world’s next economic frontier: resource-rich and grossly underdeveloped, with one viable way to go – up! As we may agree that Africa is an economic frontier, I ask a frontier for who? Is it a frontier only for drivers of world capital flowing to optimise returns or one for Africans as well?

While we so spectacularly out-performed the rest of the world in economic growth, secondary school enrolment variance with the rest of the world is widening.

Figure 4. shows secondary school enrolment for Sub-Saharan Africa compared to the global average.

The quality of education is not positioning our youth and children competitively neither for today nor for the future. Life expectancy is not improving as fast as or has not been commensurate with the growth seen in the last two decades. Inequality is worsening, and youth unemployment is raging. The African Development Bank reports that 70% of Africa’s population is below 30 years and 80% of the workforce is either unemployed or engaged in informal and subsistence activities.

Fig 4. Shows majority of Africa’s labour remains unwaged. This signifies the extent of informal and subsistence activity.

Fig 5. Most Countries are not growing employment commensurate to growth with elasticities below 0.7 which is the South Korean benchmark.

These observations lead me to one conclusion: Africa is rising but not with its own. It is rising geographically but not with its people. Africa is not its geographical location. Africa is its people. Africa cannot rise without its people, else its rise will be unsustainable, and it will only be a rise in absentia.

With 12 million youth joining the African workforce each year, the maintenance of the status quo is a catastrophe in waiting. Social media and the internet have exposed our youth to a definition of a better world and a better lifestyle. They can see the progress and productivity of other youth (in Singapore, Silicon Valley, Zurich and many more). Keeping our youth unproductive, uncompetitive and idle at this scale is dangerous and a time BOMB. It is a recipe for immense social tensions capable of reversing many of the gains we have made in recent decades. Africa’s youth must be put to constructive work. It makes no sense to them that amidst all the resources in Africa, they should be unable to realise their aspirations.

The narrative of an Africa rising without its own must change and the time to change is now.

Changing the Narrative

To change this narrative, Africa must industrialize by optimizing the value of its natural resources and agrarian output. It must structurally transform its economies from a primitive primary production model to a secondary and tertiary production model.

Africa cannot continue to export crude and import petroleum products. It cannot continue to export copper and import electrical cables, export cotton and import used clothing, export coffee and import Starbucks. It is unacceptable that Africa outpaces the world in arable land per capita and yet it is food insecure.

The current primary level-based production economies of Africa make the continent highly vulnerable to commodity price volatilities. While cocoa beans may experience volatility and weakness in prices, the prices of Cadbury and Lindt chocolates are relatively stable. This affirms the economic view that exports of manufactured products are a lot less volatile and sensitive to long term price deterioration. Hence the need for Africa to industrialise. While the cocoa bean may be sold at about $2/kg, Lindt chocolates trade in excess of $20/kg, a whopping 1,000% higher and yet Africa opts to keep thinking at the $2 raw bean level instead of the $20 chocolate value. Sadly, countries like Switzerland with no production of Cocoa are rather known to produce the best chocolates in the world with raw materials from poor farmers in places like Asankragua in Ghana.

In simple terms Africa must industrialize to survive in tomorrow’s world and build a meaningful environment for its growing youth.

In effect the world’s industries will have to expand or relocate closer to raw materials and the growing African demand. As argued by the African Economic Outlook (2018), industrialization is a critical tool in employment generation and poverty reduction and it spurs technological advancement and innovation as well as productivity gains. These are critical competencies required for the survival of any region in today’s and tomorrow’s technological world, a world driven by Artificial Intelligence and critical skills, such as innovation, visionary leadership and effective policy formulation and management.

Fig7: Shows the relationship of labour to productivity in the African Economy.

As can be observed in Fig.7, industry that accounts for about 10% of labour and yet contributes about 25% to GDP while Agriculture which contributes about 50% of labour contributes about 15% to Africa’s GDP. Agriculture is key to transforming Africa’s economy but more to the extent that it provides the base for manufacturing or industry.

Compared with other sectors, manufacturing is particularly well suited to create direct and indirect jobs with better pay and working conditions which improves the challenges with inequality and battles poverty. The generation of direct and indirect jobs in manufacturing-related services involves more people in the entire African rising process.

Industrializing Africa will address Africa’s employment concerns and transform its high economic growth rates into increased domestic revenue mobilization for development. Currently, most African countries are performing below the required threshold of 25% of GDP to support infrastructure investment.

Some argue that the rise of African industries will be the fall of developed economies. This view in my opinion is absolutely flawed. The rise of the Asian dragon did not crush the European Union or the North American economies. In any case whose capital will be used to fund Africa’s industrialization? Whose technology will drive industrialization? Whose capital equipment will be imported?

The answer is obvious: the capital, technology and equipment of developed and leading economies to whom increased returns shall accrue.

For the developed world and leading economies, Africa’s industrialization will always be a win-win situation. Hence the call for true economic partnership. Taking a cue from the words of the President of the Republic of Ghana, Nana Akuffo Addo, we call on all to partner Africa build an “Africa beyond Aid”.

To achieve industrialization, policy making must be deliberate and thorough – from the educational and skills development system all through to the realignment of institutions to ensure success.

As argued by a former finance minister of Ghana, Seth Terkper in a recent article, this cannot be achieved without a blueprint and I cannot agree more that Africa’s industrialisation and true transformation cannot be attained by wishful sentiments or the more common ‘live by the day’ firefighting attitude to governance and policymaking but by deliberate actions backed by a clear and committed blueprint. This must be a blue print by Africa, effectively coordinated to harness the varied comparative advantages of its 54 States.

To achieve the desired industrialization of Africa for sustainable development, Africa needs to strengthen its institutions by depoliticising, detribalising and building them on the principles of meritocracy and accountability. This will serve as the bedrock for policy credibility and effectiveness and will require the need to realign politics and Africa’s industry and entrepreneurship.

Politics

Africa’s biggest hindrance to transcending its third world status to first world is the canker of weak policymaking and weak institutions superintended by poor leadership. Combined with a generally passive citizenry and a docile middle-class that believes politics and policymaking are the sole preserves of politicians, a slower reform effort is our lot on the Continent. Africa needs strong and effective institutions to attract the needed capital to spur its industrialization. The current excessive politicization and tribalisation of our institutions have eliminated the culture of meritocracy required for institutional success.

Consequently, the desired investment flow to Africa is hindered by the short-term view investors hold for Africa because of the political risks they perceive from the politicization of our institutions such central banks, regulators, state-owned enterprises etc. These weaknesses translate into the inconsistency and arbitrariness of policy, infringements on the sanctity of contracts and distortion of markets – all superintendent by a corruption-laden bureaucracy. It is no wonder that only one African country – Mauritius – has been ranked in the top 50 most competitive countries in the world out of 137 countries according to the World Economic Forum (2017-2018) and just about Ten in the top 100.  

Our openness to do business has also not been any prettier. 

Out of 190 countries usually ranked on the World Bank’s Ease of Doing Business Report, Africa performs sub-optimally. In the 2018 report, Africa has only one nation ranking amongst the top 50 and just seven countries in the top 100.

The eagerness to flaunt political power is an all-too common sight in Africa, which one may refer to as Africa’s Big-manism. This phenomenon is defeatist in the quest for an industrial Africa. As President Obama said, Africa does not need strong men. It needs strong institutions. The worship of politicians must stop and the demand for accountability and true service must rise in Africa, especially from its middle class. Politicians must realise that public service is not a Chiefdom. Electorates do not queue in the scorching sun to vote them into power to be lorded over. The electorate or the citizen risk so much to cast their ballot because they need to be served, their common interests placed above individual, parochial or partisan interests.

Fig8: Africa’s share of global FDIs stands at 2.9%

The competitive world we are in today has no time for the unprepared. It is the competitive that attract investments. Money is important, but it is also a cowardly bird. It flies only to safer and welcoming environments. The 2018 World Investment Report shows that Africa’s share of Global Foreign Direct Investments stood at a mere 2.9%. To attract money, a country’s policymaking architecture must be trusted, predictable and competitive. It needs meritocratic institutions. For Africa to truly rise with its own, Africa must change NOW!

Industry

The field of Africa’s industrialists and entrepreneurs is awash with so many rent seekers and drivers of political patronage. This excessive dependence on ‘Political Big Men’ who most often than not lose their calling to true service, further weakens our institutions and renders industry significantly passive to policy for fear of vindictiveness. Yet, in developed countries, industry lays the golden eggs that spur economic transformation.

It is important to ask who has the highest stakes in a transformed economy of Africa – Industry or Politics? As industrialists, we invest capital with long-term risks, we hire most of the citizenry and account for most of the taxes. The politician comes and goes. But we, the industrialists, span the lifetime of economies. We have more to lose and must, therefore, begin to lead transformational policymaking and economic management in Africa. We cannot be like the proverbial stomach that takes in anything the mouth throws at it only to warehouse poison someday and die. 

Nelson Mandela puts it beautifully when he calls on us to lead from behind. We must lead the policy making space by being very proactive. We need to drive the quality of the process. We must lead in the transformation of our national institutions into competent bodies, independent and devoid of politicking. We must and can change the story of Africa, else Africa’s industry and entrepreneurs will miss the opportunity of leading the continent’s economic transformation, a situation that would mean that Africa will fail to optimise the returns of its own rise.

We must change the way we think and the way we act. 

We clamour to be part of the global order in trade and competitiveness. And yet we forget that charity begins at home. According to a report by the World Economic Forum on Africa, intra-regional trade amongst Africans in 2014 was extremely low at 18% compared to 69% in Europe, 52% in Asia and 50% in North America. Yet we believe Africa is rising.  This is not only because we may be producing similar goods but that we have erected higher tariff and non-tariff borders even against our less competitive neighbours while adding little or no value to our raw exports. We must evolve our patronage mentality and focus on deepening a competitive value proposition to attract the right partnerships and capital required to transform Africa into an industrialised economy.

In conclusion, I wish to reassert that Africa cannot rise without its own and that the continent must ensure its development is in tandem with the sustainable development and competitiveness of its people, industry and institutions by ensuring inclusive growth. Else, Africa’s rise will be a rise in absentia.

In addition, our economic partnerships must be revised from the extractive mentality to an industrial one where FDIs focus on optimising the value chain from Africa’s enormous natural resources, agrarian output and growing demand.

My former Energy Minister, an Economist, Boakye Agyarko often says, “Every once in a while, the future opens a window to allow the present in”. Africa is rising but its windows to the future will not be open in perpetuity. Africa’s policy and industry must align to make Africa more competitive and attractive in preparedness for its industrialisation. The time to act is NOW.

–

By: Senyo Hosi

About Author

The author is a finance and economic policy analyst with management experience across varying industries including downstream petroleum, public policy management and industry advocacy, finance, logistics, FMCG and commodity trading. He is the CEO of the Ghana Chamber of Bulk Oil Distributors. He is also Managing Director of Legacy Bonds Limited, an SPV owned by the Ghana Association of Bankers and the CBOD and responsible for the administration of over USD500million of Government debt in the petroleum downstream sector. He is a co-architect of Ghana’s Energy Sector Levies Act (ESLA) and the on-going GHs10billion Energy Bond Programme.

The Africa Centre for Energy Policy (ACEP) has cautioned the Ghana Oil Company Limited (GOIL) to ensure that it puts in place the necessary measures to absorb any risk that may arise from its partnership with Exxon Mobil.

GOIL is set to become ExxonMobil’s local partner as it begins full-scale exploration for oil in Ghana’s West Cape Three Points in the Western Region.

According to ACEP, although the move is meant to further grow and strengthen the company it will not be without risks.

In an interview with Citi Business News, Executive Director of ACEP, Benjamin Boakye said GOIL must be prepared to deal with any financial risks.

“Going forward we also have to look at the risk levels and to see which companies can be able to absorb those exploratory risks because in the oil and gas industry the risks could be high”

“So if you don’t have companies who really have enough financial muscle to be able to participate you may end up drowning those companies. For example if you look at GOIL’s financials recorded profit of about thirty million Ghana cedis and that is just about how much they need to participate in drilling a well, that is where the challenge could be ,when you sink that kind of money and you are not lucky, then you have lost that resource as a local company.

“So that discussion ought to begin to see how they can share the risk and not expose one company unnecessarily to some of these exploratory risks”.

Background

Minister for Energy John Peter Amewu earlier this week announced that government has approved state owned Oil Marketing Company, GOIL as the minority partner for the Exxon Mobil deepwater offshore oil field.

ExxonMobil’s investment in Ghana’s oil sector was the first major one following the landmark ruling by ITLOS in the maritime border dispute between Ghana and Ivory Coast, in September 2017.

The apparent victory by Ghana gave the country an appreciable reputation among the global oil giants, attracting more oil production firms.

GOIL remains the largest oil distributor in the country and the partnership where it holds 5 percent can help boost its crude oil production.

–

Source: Citifmonline.com

The Tema Oil Refinery (TOR) has acquired a 120-tonne-per-hour boiler to assist in the production of steam for onward conversion into electricity for the operations of the refinery.

That will help the company to wean itself off the national grid and make it self-sufficient in energy supply.

Currently, TOR consumes 7.5MW of power at peak periods but produces 5.5 from its steam boilers.

The refinery took delivery of the boiler it has christened Boiler Eight, on October 27, and it is now being assembled for installation.

Boilers generate steam to power turbine generators used in producing electricity. 

Impact

The Utilities Manager at TOR, Alhaji Amin Abubakar, told the GRAPHIC BUSINESS on October 30 that the acquisition of the boiler was part of plans to revive the refinery’s activities and restore capacity to 45,000 barrels per stream day (bpsd).

He said the successful deployment of the boiler would help increase power generated by the refinery from the current 5.5 megawatts (MW) to 12MW.

Alhaji Abubakar explained that the steam generated from the extra boiler would be enough to commission a 6.5MW generator that had already been installed.

Revival agenda 

Two weeks ago, TOR took delivery of 947,000 barrels of crude oil to be used to revive its refinery operations, which had been intermittent, mainly due to lack of a credible crude oil supply deal.

The Public Affairs Manager for TOR, Dr Kingsley Antwi-Boasiako, explained in an interview that the acquisition of the boiler was part of efforts to improve efficiency and reliability of the processing.

He said with plans to revive refinery activities and restore capacity to 45,000 bpsd by first quarter next year, management had decided to put in place appropriate measures to help ensure efficiency.

One of them, he said, was to wean the refinery off the national grid, which was costly yet unreliable.

He described the acquisition of the boiler as “a major boost to the efficiency and reliability of the processing plants. 

“Although we are keeping our expectations moderate, we hope that instances where TOR has to shut down as a result of unavailability of power will now reduce to the barest minimum,” Dr Antwi-Boasiako stated. 

Petroleum hub

With the government aiming to make Ghana a petroleum hub in the West African sub-region, ??reviing?? TOR sustainably is critical.

It is will serve as a strong catalyst for the realisation of the agenda while cutting down the country’s dependence on imported petroleum products.

Last year, some 3.46 million tonnes of petroleum products were imported at a cost US$2 billion.

Source: Graphiconline.com

The mercurial nature of the oil market has flipped the mood in the past two weeks from hysterical expectations of severely reduced supply from Iran to concerns over the pace of global economic and oil demand growth.

Trade wars, weakening emerging markets and currencies, and the strengthening U.S. dollar began to overshadow market fears that OPEC leader Saudi Arabia, non-OPEC leader Russia, and their partners in the production cut deal may not be able to offset the loss of Iranian barrels and continuously falling production in Venezuela.

Then the market had to digest the latest geopolitical flare-up with the killing of a Saudi journalist critical of the Kingdom, the international outcry over the incident, and an initial veiled Saudi threat that it could retaliate to any potential sanctions over the death of Jamal Khashoggi.

Saudi Arabia admitted late last week that the journalist was killed in what it described as a “brawl” in the Saudi consulate in Istanbul.

While the market was weighing this development, oil prices were trending down and plunged on Tuesday to a two-month low, with both WTI Crude and Brent Crude slumping by 4 percent—the worst one-day drop since July.

The plunge was the result of several factors.

First, Saudi Energy Minister Khalid al-Falih stepped up rhetoric this week about how reliable Saudi Arabia is as a supplier, how it is ready to meet all customer demand there is, and how the Kingdom won’t weaponize oil and has no intention of repeatingthe 1973 oil embargo due to the Khashoggi case.

Next, the market has started paying more attention to the demand side of the equation, as concerns creep into the market about an imminent slowdown in global oil demand growth due to the high oil prices and strong dollar that weigh on emerging markets’ oil import bills, and looming global economic growth slowdown amid trade wars and tariffs.

Then, hedge funds and other money managers continued to liquidate long positions and take profits last week, building short positions in Brent and WTI.

The equity sell-off on Tuesday and the American Petroleum Institute (API) reporting a huge build of 9.88 million barrels in U.S. inventories further dampened the mood on the oil market.

Earlier on Tuesday, market participants seemed to buy al-Falih’s latest assertion that “We will meet any demand that materializes” and that OPEC and allies are in a “produce as much you can mode.”

At the Saudi conference dubbed ‘Davos in the Desert’—largely shunned by many because of the Khashoggi case—Saudi Aramco’s CEO Amin Nasser reaffirmed that Saudi Arabia’s 12 million bpd oil capacity “can be sustained for a long time, backed by among the largest reserves in the world, with the highest quality and the lowest cost of production.”

“While geopolitical factors raise the risk that Saudi Arabia backtracks on its supply commitments to offset Iranian sanctions, we do not expect production cuts given the resulting loss of market share to US shale and other oil producers,” JP Morgan said in a note on Monday, as carried by CNBC.

Even before Tuesday’s oil price plunge, money managers, who had already started to liquidate long positions, continued to cut bullish bets last week.

The net long position—the difference between bullish and bearish bets—in WTI dropped 14 percent in the week to October 16, Bloomberg calculations of U.S. Commodity Futures Trading Commission data show. Longs declined 7.1 percent, but shorts surged 38 percent to the highest number since November last year. The net long position in Brent also dropped 14 percent in the week to October 16.

Earlier fears of Iranian supply losses have been slowly turning into fears about the rate of growth in global economy and oil demand going forward, amid unstable emerging markets and currencies, rising dollar, trade wars, and tariffs all weighing on oil demand growth expectations. Rising U.S. inventories have also added to the more bearish sentiment.

“While the negative impact of rising crude oil prices has yet to affect the 2019 demand outlook, there is no doubt that it will have an impact sooner rather than later,” Ole Hansen, head of commodity strategy at Saxo Bank, wrote in the bank’s recently published Q4 2018 Quarterly Outlook.

While lower supply from Iran and Venezuela and a thinning global spare capacity can be price-positive in the short term, “given the negative impact of the current dollar strength, rising US interest rates and trade wars, we believe that the global economy is not able to cope with runaway oil prices,” Hansen says.

Yet, Hansen notes, Saxo Bank understands the recent bullishness “as the oil market reacts first and asks questions only later.”

Source: Oilprice.com

Petro-states urgently need to begin diversifying their economies, shifting away from oil production, or else they face financial risks in the years ahead.

That conclusion comes from the IEA’s new report, “Outlook for Producer Economies,” which warns that a changing energy system threatens the economies of oil-producing countries. The threat comes in multiple forms, both on the supply side and on the demand side.

Energy efficiency, electric vehicles and other technological changes raise questions about peak demand. Climate regulation also threatens to destroy consumption. On the supply side, U.S. shale could capture a bulk of any demand increase that might have otherwise been met by other oil producers.

These factors pose serious threats to major oil producers, and the IEA focused on six countries: Iraq, Nigeria, Russia, Saudi Arabia, the UAE and Venezuela. All of those countries are significant oil producers and are overwhelmingly dependent on oil revenues to finance their budgets.

That dependence is a risk during normal cycles. The IEA noted that Iraq saw its oil revenues plunge by 40 percent after the 2014 oil price meltdown, while Venezuela saw revenues fall by 70 percent. “Major swings in hydrocarbon revenue can be deeply destabilising if finances and economies are not resilient,” the report said.

However, the problem of petro-dependence is even worse looking forward, because electric vehicles finally offer a competing alternative to crude oil in the transportation sector, while forthcoming carbon restrictions will accelerate the shift off of fossil fuels. This means the threats in the future are structural, not just cyclical.

In the IEA’s central New Policies Scenario, the crisis facing oil producers may not be particularly acute in the 2020s, as U.S. shale is expected to plateau and the potential for medium-term supply tightness could keep revenues aloft. However, this also could accelerate the energy transition, while offering the allusion of prosperity to oil-producing states.

However, the IEA’s lower oil price scenario is darker, which makes the need to diversify economies all the more urgent. This case assumes higher U.S. shale production combined with demand-side efficiency measures. “In a case in which oil prices settle in a $60-70/barrel range, net oil and gas income never recovers to 2010-15 levels, leading to a cumulative $7 trillion loss in revenue over the period to 2040 compared with” the more base-case New Policies Scenario, the IEA said. “Without far-reaching reforms, this would translate into large current account deficits, downward pressure on currencies and lower government spending. In the Middle East, the downside economic risk equates to a $1,500 drop in average annual disposable income per person.”

This is of particular concern in countries like Nigeria, Iraq and Saudi Arabia, which need persistently high oil prices in order to keep up social spending. Stability is a question from increasingly restive populations in search of employment.

A separate scenario looks at the prospect of a rapid transition to cleaner energy, which assumes a near-term peak in oil demand. The outcome in that scenario is very similar to one in which oil prices remain low: oil revenues do not recover to the pre-2014 levels and petro-states face a crisis.

In other words, no matter how you slice it, petro-states face a grim future if they do not diversify away from oil.

The IEA had a few suggestions for these major oil producers. They need to keep oil production costs low, they should cut subsidies for fuels and deploy energy efficiency so that their energy resources are not squandered.

One particularly wasteful practice is burning oil for electricity, which is now somewhat rare in much of the world. But the Gulf States still consume around 2 million barrels per day for electricity, a figure that fluctuates seasonally, spiking in the summer months. “This is very inefficient. It’s like using Chanel perfume to fuel your car,” the IEA’s executive director, Fatih Birol, said, according to Bloomberg.

Saudi Arabia and other Gulf States should invest heavily in solar, which would both diversify their economies and free up their oil for export, the IEA notes. “Even if oil were priced for generation at $40/barrel (well below its current market value), unsubsidised solar would be displacing [crude oil for electricity generation] quickly,” Tim Gould, IEA’s Head of Division for Energy Supply Outlooks and Investment, and Ali Al-Saffar, Energy Analyst, said in a companion piece to the main report.

The agency also says that these countries should move “further downstream in the oil value chain to refining and petrochemicals,” which “opens up revenue streams and provides a hedge against the risk of a possible contraction of transport oil demand.” Saudi Arabia is already doing this with massive petrochemical investments.

Other recommendations include supporting the development of cleaner technologies, such as carbon capture and storage, new concentrated solar projects for enhanced oil recovery, or solar combined with desalination.

The IEA cited Indonesia and Mexico as recent cases of oil-producing states that have had some success in economic diversification. “In both cases, non-oil growth has not been achieved by the state directly recycling oil revenues,” the IEA said. Both countries focused on “export-oriented manufacturing” and tourism, with a focus on foreign direct investment, trade policy, “prudent macro policies,” and improvement in human capital.

“More than at any other point in recent history, fundamental changes to the development model in resource-rich countries look unavoidable,” the IEA concluded.

Source: Oilprice.com