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Nigerian Crude Grades Chalk Up Premium On Demand Upbeat

After being shut out recently because of high freight and weaker prices for light, sweet Mediterranean grades, West African crude particularly Nigerian grades were looking attractive, Reuters quoted unnamed market sources. Qua Iboe, Nigeria’s flagship grade, was assessed at Dated Brent plus $0.35/barrel last week, having been trending downwards in recent months from Dated Brent plus $1.80/b in March. “Freight is easing, so European refiners are looking at alternatives,” one crude trader said. That comes as grades such as Azeri Light, which competes with Nigerian crudes, has risen steeply in the past week, having been at a multi-year low late May. Other light grades in the region have also seen increases, due to a tighter Mediterranean sour crude market. Crude could come from West African barrels in floating storage, traders said.

“I think that there are already some barrels coming out of storage as the market structure is not so favorable to keep the barrels floating,” a trader said. Some barrels could also be released from inland storage, traders said. “The arbitrage is definitely opening and we should see WAF barrels move into the Med,” said one crude trader. The development is buoyed by reports that oil’s biggest slump in four years will lose momentum because the plunge in Chinese equities and Greece’s economic crisis won’t dent global demand, according to Morgan Stanley, UBS Group AG and Societe Generale SA. Crude is set for a “modest recovery” after declining 13% in the five sessions through Wednesday, Morgan Stanley estimates, while demand will push prices up by year-end, according to hedge fund manager Andrew J. Hall.

Any nuclear deal with Iran won’t quickly revive the OPEC member’s crude exports, so wouldn’t immediately weigh on prices, Societe Generale said. Crude erased this year’s gains amid a stock-market rout in China, the world’s second-largest oil consumer. European leaders talked openly about a Greek exit from the euro before a weekend summit, a break from years dismissing the possibility. Nuclear talks between world powers and Iran, the fourth-largest producer in the Organization of Petroleum Exporting Countries, missed another deadline. “I wouldn’t be surprised to see Brent dipping temporarily below $55/bbl,” Giovanni Staunovo, an analyst at UBS, said by email from Zurich.

“To see a stronger downward   move we need to see other factors,” such as an impact on economic growth and fuel consumption. West Texas Intermediate, the U.S. benchmark, traded near the lowest level in three months Wednesday, falling 68 cents to $51.65/bbl on the New York Mercantile Exchange. The 13% drop in the past five trading days was the steepest since 2011. Brent crude, the European marker, traded at $57.05 on the London-based ICE Futures Europe exchange The combination of Greece, Iran, China and an unexpected expansion of U.S. crude stockpiles in the final week of June combined to bring down prices, said Mike Wittner, head of oil market research at Societe Generale.

“That’s your Four Horsemen of the Apocalypse right there, but we don’t think it’s an Apocalypse Now,” Wittner said by phone from New York on Tuesday. “Are the fundamentals $10 weaker than they were two weeks ago? I don’t think so.” Others say a persistent surplus in global oil supplies is a more important cause of the price slide, and see scope for further declines. Surging OPEC output and resilient drilling activity in the U.S. will push WTI to $45/bbl by October, according to Goldman Sachs Group Inc. The U.S. benchmark could fall below $50/bbl this week as economic concerns compound the effect of the surplus, according to BNP Paribas SA.

“We may not have seen the bottom for the oil price,” Eugen Weinberg, head of commodities research at Commerzbank AG, said in an interview in London, predicting that WTI may touch $45/bbl and remain below $50 for an extended period. The global market will remain amply supplied into 2016, Total SA, CEO, Patrick Pouyanne said at a parliamentary commission in Paris Wednesday. Despite the selloff prompted by the Chinese stock slump and the risk of Greek default, demand strength in the U.S. and Asia still points to a rally by the end of this year and into 2016, Hall wrote in a letter to investors in his Astenbeck Capital Management hedge fund dated July 1.

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