Bleak outlook for the unconventional oil industry in the United States and Europe and associated concern over supply of light sweet crude grades for optimum yield of transportation fuels may explain the gradual re-growth of US demand for Nigerian crude oil grades.
Survey of market reports by The UNION showed that despite the near close out of Nigeria’s crude oil export to the United States in the past one year, new demands are opening up for Nigerian crude grades prized for their low sulphur and high octane composition.
The rebound of Nigerian oil cargoes to the US coincided with market outlook by the Organization of Petroleum Exporting Countries (OPEC) which trimmed estimates for non-OPEC supplies in 2016 as the slump in prices takes its toll on the U.S. shale-oil industry.
Also, the International Energy Agency (IEA) said that non-OPEC oil supply was set to plunge in 2016 by almost 500,000 b/d as the renewed fall in oil prices took its toll on producers in the US in particular, but also in Russia and the North Sea.
The projected fall in non-OPEC production thus raises hope for OPEC countries that produce from conventional sources where economies of scale and developed industry technology have helped lowered per capita production cost and enhanced operations efficiency.
Most of the world’s refineries are configured to process conventional crude oil, and the West African crude grades are prized in countries that contend with high demand pressure for transportation fuels. Until 2014, US remained the destination for over 50 percent of Nigeria’s crude exports.
By first quarter of 2015 when the US unconventional oil industry reached peak of production boom, Nigeria’s export to the country dived below one percent.
However, with the battle for market space among producers and consequent oil price crash, production trends and export cargo movements are beginning to revert to the traditional patterns.
Market and tanker tracking sources stated weekend that arbitrage opportunities are beginning to open up for Nigerian crude to head trans-Atlantic, with a few cargoes said to be heading to US refineries. Two Nigerian grades, including at least two cargoes of flagship crude Qua Iboe as well as Bonga, were heading to US east coast refineries as well potentially down to the US Gulf Coast, traders said.
“It is bits and pieces, not massive flows,” one crude trader said. One cargo of Nigerian crude is heading over regularly to the Delta Airlines refinery in Trainer, Pennsylvania, a source close to the matter said, while Philadelphia Energy Solutions was also heard to have bought Nigerian crude, including an end-September loading cargo of Bonga and, potentially, a cargo of Qua Iboe.
PES spokeswoman Cherice Corley declined to comment on the refinery’s commercial and supply operations. Shipping fixtures seen by Platts showed PES, Exxon and Statoil chartering vessels to take West African barrels to the US for end-September loading cargoes, and traders have said Vitol’s October 3-4 loading Qua Iboe cargo was also heading to the US. Sources at Statoil and Vitol were not available for comment, while ExxonMobil spokesman Paul Tindall declined to comment.
Traders cited the narrower Brent/ WTI spread and good US refining margins as the main factor pulling Nigerian barrels. “I think Qua works because of the arb and margins,” a crude trader said. “The arb is low enough for [refineries] with good jet margins to buy it.”
While flows of Nigerian crude to the US during June and July were partly driven by high prices for domestic light sweet crudes, such as Louisiana Light Sweets, that has not been the case for the recent moves. “US grades have really been sideways all week,” said one US crude trader. “The biggest change has been in the arb.”
The spread between Brent and WTI has narrowed over the past week, with the October contracts’ spread as narrow as $2.96/b, the lowest since June 30.
European refiners have been the main buyers of Nigerian crude in October so far due to good refining margins on the continent but other light sweet crudes in the North Sea and Mediterranean are coming off and could compete, traders said.
It was a buyer’s market for light sweets in the Atlantic Basin, pressuring North Sea grades such as Ekofisk and Oseberg and key Mediterranean grades such as Azeri, they said.
As a result, Nigerian crude could continue to flow to the US, traders said, especially as values were starting to come under pressure again with November’s program likely due out next week and at least 30 million barrels still available for October.
– Sopuruchi Onwuka, with agency reports