According to crude loading schedule for September sighted by our correspondent at the weekend, this is as gluts rocking the global oil market takes toll on Africa’s biggest oil exporter.
Nigeria depends largely on proceeds from crude to service over 85 per cent of her budget.
As demand for the country’s crude grades remains elusive, the schedule shows that the crude differentials for the Africa’s biggest economy suffered a slide.
“Differentials for Nigerian crude oil continued to slide as lacklustre refining margins and a plethora of competing grades prompted sellers to lower offers in the absence of demand,” a document of Reuters on the loading schedule stated.
Up to 20 cargoes remain for August loading amid a glut of light sweet crude from the United States and the North Sea — where differentials are also falling.
“The backlog is putting pressure on prices for September loading, especially for main grades – Bonny Light, Qua Iboe and Forcados, which are all being offered at among the lowest rates in 2019,” the report noted.
Mercuria is attempting to sell a cargo of August loading Forcados after having sold a cargo of mid-month loading Jones Creek.
Differentials for August loading Bonny Light and Qua Iboe crude were at well below a $2.00 premium to dated Brent.
Aside the glut suffered by Nigeria on crude sale, the country also contends with challenges from importation of refines product.
The subsidy on premium motor spirit (PMS) also known as petrol imported into Nigeria, for instance, skyrocketed by a whooping N91 billion in 31 days. This surge, a further scrutiny of the May 2019 financial report of the Nigerian National Petroleum Corporation (NNPC) showed, is 682 per cent of under recovery suffered by the country through the NNPC between December 2018 and January, 2019.
N13.3 billion, the report showed, was expended on under-recovery last December while the cost of under-recovery stood at N104.3 billion in January.
The figure, in February, stood at N102.3 billion.
Latest figure, however, shows that China would ramp up gasoline exports in July and August to near record levels with cargoes moving to Nigeria.
The cargoes, a report showed, would also move to Mexico, as refiners seek outlets for their fuel amid a wave of new production and slowing domestic demand.
Nigeria through Organisation of Petroleum Exporting Countries (OPEC) had tried to evade the imminent bearish sale for its crude grade.
At the start of last July, OPEC and Russia decided to continue the agreement struck last year for at least another nine months, and daily production will remain 1.2 million barrels below last October’s level.
In response, Brent crude rose to $67 per barrel (bbl) but has since drifted to $63.46 /bbl, a level which is below what many OPEC members require to finance their budgets.
For example, the Saudi economy needs oil prices of around $80 a barrel to balance its budget, reports Al Jazeera last July.
OPEC’s July Oil Market Report sees global GDP growth of 3.2 per cent continuing into 2020 and world demand rising by 1.4 (million barrels per day (mb/d) year-on-year to around 100mb/d.
Meanwhile, the report sees non-OPEC member producers’ output growing by 2.4mb/d, more than twice as much as global oil demand. U.S. shale oil output reached a record 12mb/d in April and OPEC’s report notes: “U.S. tight crude production is anticipated to continue to grow as new pipelines will allow more Permian crude to flow to U.S. Gulf coast export ports.”
Consequently, the report forecasts a decline in demand for OPEC crude of 1.3 mb/d to 29.3 mb/d and a global glut of crude in 2020, implying a further cut of 560,000 barrels per day (bp/d) to maintain prices.
The coming months could be marked by extreme turbulence and uncertainty in the oil market and within OPEC itself. America and Iran, an OPEC member, are flirting with war, as U.S. sanctions on Iran bite and Iran threatens the passage of tankers through the Straits of Hormuz.
Production in Libya is vulnerable from the escalating conflict and Nigeria’s output is uncertain.
These threats could ensure a further decline in OPEC’s market share from 39.2 per cent in March as distinct from OPEC’s self-imposed production cuts.
There is also uncertainty as to how long the OPEC alliance will be willing to lose market share to America.
In 2018, America, which hitherto was biggest consumer of Nigeria’s crude, became the world’s largest crude producer and this year America will pump 1.2 million more barrels of crude a day.
At December’s next scheduled OPEC meeting, participants face a problem of what to do next, especially if the world economy begins to slow and in particular, demand from OPEC’s largest customers China and India, falters.
If crude prices remain low, OPEC and Russia will face a difficult choice – let prices dip or cut production more steeply than envisaged – sacrificing market share and supporting U.S. shale.
It is likely that any further production cuts by OPEC and Russia to maintain prices will be harder to implement if all it does is boost American oil producer’s profit