africa Angola commodities oil

How will Oil commodities respond to uncertain Q3 estimates?

2019 has not been an easy ear for the overall Oil market. The year started with promising prices for the industry, but was cut short by tariffs imposed by some of the largest OPEC importers.

This carried out until the first quarter of 2019, and the Q2 seemed stable, production thrived and new oil fields were acquired by big companies, Exxon’s $1.6 bn USD field in the North Sea and Annadarko’s surprising $30 bn USD breakaway.

Ever since the attacks on the oil fields of Saudi Arabia, uncertainty about the world’s oil supply has been prominent. This uncertainty was reflected on the prices that went from a huge increase of about 15% on the price of the barrel to a decrease in the normal price of about 5%. These events not only reflect the concerns of companies that buy or sell oil, but also affects countries that depend on oil exports as a revenue method. Nigeria has an economy solely dependent on crude petroleum and petroleum products, both combined account for over 80% of the countries exports.

A recent report by the Central Bank of Nigeria(CBN) saw an increase in oil production of 4.3%. The report took the data submitted by Oil companies from the month of August to September; since the report, the quantity of barrels has increased, but the prices did not follow the same path. According to CBN’s website, the price drop from the end of Q2 in mid October to the beginning of November has been observable, from just over $61 USD to as low as $56-57 in some days.

Nigeria will not be the only African nation that will see the effects of decreasing oil prices until the end of the fiscal year. In 2017, Angola exported over $30.3 bn USD in goods, $26 bn USD of which were of Crude Petroleum. Over 90% of Angola’s exports in 2018 was of Petroleum related products, implying that even a slight change decrease in the price can lead to noticeable numbers in export revenue. Another factor that might play against Angola is regarding its top exporter, China. The top three Chinese oil companies that have previously invested in Africa are state-owned and state-managed, between CNPC, Sinopec and CNOOC, there is a total of over $600 bn USD in AUM. If the supply maintained by Angola does not pick up the pace, the country might see many cutbacks in oil related projects. The situation for this Q3 does not look promising for Angola as well. Compared to the third quarter of 2018, production has shrunk by over 15.3 m barrels. Also if compared to Q2 of 2019, production has decreased from 116.4 m barrels, at an average price of USD 62.8 per barrel to just shy of 110 m barrels.

The African Oil scenery might seem complicated at the moment, and holds many questions for investors and buyers. With the market for Latin American oil also growing at the moment with countries such as Brazil opening oil fields for auction, one must ask: Until when will natural resources be a fundamental part of African nations economy?

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