The expected rise in Nigeria’s crude oil
export next month is coming at a time when output from the North Sea in
Europe will reach the highest in more than three years amid a
persistent global production surplus.
Europe, which is Nigeria’s biggest
regional crude market, has increased its import of the country’s crude
in recent times, partly offsetting the loss of the United States as a
key buyer. In 2014, 45 per cent of Nigerian crude exports went to
Europe, according to the US Energy Information Administration.
North Sea production had until recently experienced long-term decline in output from aging fields and high production costs.
The falling production in the North Sea
and Libya, according to industry analysts, has boosted Europe’s import
of Nigerian crude in recent times, which increased to 50 per cent in
April this year, down from 43 per cent in the previous month.
But the region’s share of Nigerian crude looks set to fall following the current increase in North Sea oil, analysts said.
Output of North Sea grades will reach the highest since May 2012 in October, according to loading programmes compiled by Bloomberg. Supplies from Nigeria, the biggest oil producer in Africa, are set to reach a level not seen since August of that year.
The programmes, according to traders, will have to jostle for buyers.
The Head of Energy, Ecobank Capital, Mr.
Dolapo Oni, told our correspondent that the increase in North Sea
output “adds to the glut of light sweet crude in the Atlantic Basin and
could extend the overhang for Nigerian crude cargoes.”
“The flip side is that we might see differentials on the Bonny Light and other major grades dip,” he added.
Bonny Light is one of Nigeria’s main
export grades. In June this year, it fell to dated Brent plus 23 cents,
the smallest differential since 2005 and compares with a 50 cent premium
in June 2014 and $2.55 a year earlier.
In a bid to attract buyers, the Nigerian
National Petroleum Corporation recently lowered the official selling
price for its largest crude oil stream, Qua Iboe, to dated Brent plus 35
cents per barrel, the lowest differential since May 2005.
Shipments of Brent, Forties, Oseberg and
Ekofisk and other North Sea grades will average 2.1 million barrels per
day in October, according to data compiled by Bloomberg. Nigerian
supplies will total 2.2 million bpd, the data show.
“It’s directionally bearish for crude.
The large loading programmes will need buyers,” an analyst at Macquarie
Capital Inc., Vikas Dwivedi, said.
Demand for crude will weaken as refiners
shut down for seasonal maintenance, although this year’s schedule will
be lighter than usual as companies take advantage of high profit
margins.
There is an “existing overhang of crude
in the northwest of Europe as well as in West Africa,” an analyst at
Natixis SA, Abhishek Deshpande, said. Together with refiners going
offline for seasonal maintenance, that “only tells you one story –
pressure on Brent and West African prices.”
Four regions, namely, Europe, Asia and
Far East, South America and Africa, are the major destinations of
Nigerian crude and condensate export, according to the NNPC.
But weakening demand in Asia, where
Chinese refineries are cutting runs and that country’s shaky economic
growth is roiling international commodity markets, has already begun to
pressure differentials to dated Brent for West African crude grades.
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