US, India, others shun Nigeria’s April Crude despite high offers

-By Gideon Osaka

There are concerns that Nigeria, whose mainstay of the economy is oil, may not achieve its expected revenue from the product in 2019, as the United States, India and other buyers appear to be shunning the country’s April crude supply, despite high offers.

Sources told Valuechain that Nigerian crude oil for the month of April loading has been slow to sell, with offer levels providing little value compared with rival grades from the Mediterranean, North Sea and Latin America. “I have not heard anything trade. It looks very quiet,” one crude trader said, while another said: “Buyers have pulled back quite a bit and we may be in for a bit of a waiting game on the Nigerian front.

“Northwest European buyers might consider West African grades to be on the expensive side. The structure is not helping a lot,” a third crude trader said. “The North Sea has come off a bit, so competition for Nigerian grades is stronger. Just on an economic perspective, people will be swinging away from West African crude. Current linear programming runs would signal that as well.” US imports of Nigerian crude have been sharply lower year on year of late. US Energy Information Administration data showed imports averaged 29,000 b/d in the four weeks to February 22, versus 308,000 b/d in the 2018 period. “With the USAC Philadelphia refiners now largely pulled out of WAF light sweet, the majority of the remaining Nigerian will be dependent on clearing in the prompter European market,” a crude oil trader said.

Also, with India signing an agreement to import 0.6 million barrels of oil from the United States, Nigeria’s crude exports could further be threatened if new markets are not explored, a new report has revealed. The research noted that India was Nigeria’s top crude oil buyer in five of the last six years. Nigerian and Angola crude oil cargoes were said to be clearing slowly in lacklustre demand with programmes due to emerge soon. About 30 Nigerian cargoes from April loading programme were still available, it was learnt. High freight cost into Europe was another factor pressuring Nigerian crudes. Although Suezmax freight rates has fallen since peaking at multi-year highs late November, freight rates were still higher year on year. The West Africa to UK Continent trip was assessed at $10.11/mt, according to S&P Global Platts data, compared with $6.95/mt on March 5, 2018. “March [Nigerian value] was over-hyped and there appear to be pressures on competing Mediterranean grades that will affect Nigerian [April crude]. Urals, CPC, Sahara, and Libya, especially as El Sharara is expected to be back,” a market source said.

In the Mediterranean, Kazakhstan’s CPC Blend and Algeria’s Saharan Blend, both light, naphtha-rich grades, have remained near three-month lows in recent sessions amid weak gasoline and naphtha cracks and, more recently, the restart of output from Libya’s Sharara field after force majeure, which had been in place for almost three months, was lifted. “CPC is the most economic grade at the moment in the Med [in terms of cracking margins],” one crude trader said. CPC Blend was assessed at a discount of $1.95/b to the Mediterranean Dated Strip and Saharan Blend at a discount of Dated Brent minus 5 cents/b to the Mediterranean Dated Brent strip.

Analysts also believe that high production cost of shale oil coupled with the slump in global oil prices caused capital expenditure into shale production to decline substantially, forcing the US to ramp up imports from countries like Nigeria. “Going forward, with stability in oil price, we think US would be able to sustain and possibly ramp up shale oil production which could further impact crude import from Nigeria,” the analysts added. Some traders, however, were not expecting North Sea crude to displace West African grades just yet, with one trader saying the distillate yield of West African crudes would keep them competitive.