Oil price reverses trend, drops back to $60.90

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…Nigeria, others get $40b as global FDI falls to $1.2tr

International oil price, yesterday, reversed its two-week upwards movement, slashing $2 to hover at $60.90 over fears of excess supply from non-OPEC member nations.

Specifically, the prices of Brent, West Texas Intermediate, WTI, and OPEC basket stood at $60.92, $52.18 and $59.63 respectively.

At the current price, Nigeria’s 2019 budget benchmark of $60.00 per barrel appears threatened again.

However, despite the fall in the general price level, the Organisation of Petroleum Exporting Countries, OPEC, remained optimistic of achieving market stability. In its latest report sent to Vanguard, OPEC stated that stability is gradually returning to the market, which witnessed price slump from $85.00 in October to less than $50.00 in December 2018, especially as the Joint Ministerial Monitoring Committee (JMMC) was working to achieve the mission.

It stated: “The Joint Ministerial Monitoring Committee (JMMC) has expressed its utmost satisfaction with the steady and robust achievements of the two-year old ‘Declaration of Cooperation’ between OPEC and participating non-OPEC oil producing countries.

“The JMMC noted that countries participating in the ‘Declaration of Cooperation’ achieved an overall conformity level in November 2018 of slightly below 100%, hitting 98% for the month. “It is evident that significant progress has been made towards the goal set at the 4th OPEC and non-OPEC Ministerial Meeting of 23 June 2018, whereby countries agreed to strive to adhere to the overall conformity level, voluntarily adjusted to 100%, as of 1 July 2018 for the remaining duration of 2018.”

“The overall conformity level since the beginning of the ‘Declaration of Cooperation’ in January 2017 is well above 100%, coming in at 116%. “The Committee confirmed the attached new voluntary production adjustments effective as of 1st of January 2019 for an initial period of six months, based on the unanimous decisions taken at the 175th Meeting of the OPEC Conference and the 5th OPEC and non-OPEC Ministerial Meeting on 7 December 2018.

 “These voluntary production adjustments will continue to be monitored by the JMMC on a monthly basis, ably supported by the Joint Technical Committee and the OPEC Secretariat, in an open and transparent manner.

“The JMMC calls on all participating countries of the ‘Declaration of Cooperation’ to redouble their efforts in the full and timely implementation of the supply adjustments to ensure that the oil market remains in balance in 2019.”

President Muhammadu Buhari had while presenting the budget to the National Assembly stated: “The 2019 Budget proposal is based on the following assumptions: Oil price benchmark of $60 per barrel; Oil production estimate of 2.3 million barrels per day, including condensates; Exchange rate of N305/$; Real GDP growth of 3.01 percent; and Inflation Rate of 9.98 percent.

“Notwithstanding the recent softening in international oil prices, the considered view of most reputable analysts is that the downward trend in oil prices in recent months is not necessarily reflective of the outlook for 2019.

“However, as a responsible Administration, we will continue to monitor the situation and will respond to any changes in the international oil price outlook for 2019. With regard to oil production, I have directed the NPPC to take all possible measures to achieve the targeted oil production of 2.3 million barrels per day.”

In the meantime, global foreign direct investment (FDI) fell by nearly a fifth in 2018, to an estimated $1.2 trillion from $1.47 trillion in 2017, according to the latest UNCTAD Global Investment Trends Monitor released on Monday, with Nigeria and Angola experiencing weak performance.

The drop, the third in as many years, brings FDI flows back to the low point reached after the global financial crisis, with the decline concentrated in developed countries where inflows fell by as much as 40% to an estimated $451 billion.

UNCTAD shows that FDI to developing economies increased by three per cent to $694 billion in 2018, and accounted for half of the top 10 host economies for FDI inflows.

Of the developing economies, Asia and Africa benefited the most, with flows increasing to developing countries in Asia by five per cent.

The slight increase in FDI to Africa ($38 billion in 2017 to $40 billion in 2018), was driven by strong performance in Egypt, and South Africa and weak performance in Nigeria, and Angola.

Specifically, South Africa recorded 446% increase, Egypt up by 7%, while Nigeria was down by 36% (to $2.2.bn in 2018 and was overtaken by Ghana who received $3.3bn).

“The underlying FDI trend has shown anaemic growth since the global financial crisis, and has been on a downward trajectory since 2013,” James Zhan, Director of UNCTAD’s Investment Division said.

“The factors behind this negative trend, such as lower profitability of foreign investment and shifts in global value chains, are not changing in the near future. The macro-economic backdrop is also deteriorating,” he said.

According to UNCTAD, the 2018 FDI decline stems from corporate income tax reform in the United States. From 2017, U.S. multinational enterprises have embarked on a large repatriation of accumulated foreign earnings, a move which has hit Europe hard.

In 2018, Europe’s foreign investment inflows amounted to $100 billion – an unprecedented 73% decline – and a value last seen in the 1990s. The U.S. also saw its inflows dip to $226 billion, a decline of 18%.

In contrast, global cross-border mergers and acquisitions were up 19%, and announced greenfield investments were positive, up 29%, indicating that FDI could improve in 2019. Meanwhile, developing economies’ FDI flows have been more resilient.

East and South-East Asia, where inflows were up two per cent and 11% respectively, took the lion’s share of foreign investment, accounting for one-third of global FDI in 2018, and almost all growth in FDI to developed economies.

“South East Asia is the main FDI growth engine,” said Mr. Zhan, with the region rebounding from a dip in 2017, buoyed by growth in Indonesia and Thailand.

Greenfield announcements in developing economies rose by 47% reaching an estimated $539 billion and linked to Asian growth prospects.

African FDI flows were up six percent, though growth was concentrated only in a few countries such as Egypt and South Africa.

“Slow economic recovery in Latin America and the Caribbean saw flows drop by four per cent,” Mr. Zhan added.

While the outlook is more positive for 2019 with a rebound expected, Mr. Zhan said there are still many uncertainties facing the global economy.

“Beyond the immediate impact of economic headwinds, the underlying trends for global FDI remain weak, driven by one-off factors such as tax reforms, megadeals and volatile financial flows,” says Zhan.

“As the initial flood of earnings repatriations in the United States abate, things will normalise rebounding to ‘average’ levels of inflows. But the outlook for the global economy is darkening, underpinned by structural factors in the economy.”

These include policy factors, trade tensions, and a return of protectionist tendencies.

In addition, the strengthening of the digital economy and thus a shift toward intangibles in international production will play a role, alongside significant declines in FDI returns, already evident over the past five years.

Vanguard with additional report from Guardian NG