NIGERIAN is facing the prospect of further economic crisis as its crude oil sales to Europe are being threatened by increased US exports which are being sold at discounted prices this making their shipments more attractive to buyers.
Low in sulphur and very environmentally-friendly, Nigeria’s Bonny Light Crude has been a favourite of European buyers because it leaves a minimal carbon footprint. With the coronavirus pandemic, however, things have become very tough for Nigeria as both crude prices and demand have fallen, severely depressing government revenue.
With the sale of petroleum products accounting for about 95% of government revenue, Nigeria’s budget is predicated on developments in the sector. For instance, the 2020 budget of $28.8bn is based on Nigeria selling 2.1m barrels of oil at a benchmark price of $57 a barrel but due to the Covid-19 pandemic, these plans are now in tatters.
To make matters worse, the increasing flow of the US crude into Europe is threatening to displace Nigeria’s traditional light sweet crudes, forcing sellers of Nigerian and Mediterranean oils to discount September-loading cargoes. Analyst S&P Global Platts quoted traders as saying that the spot market for September-loading cargoes from Nigeria had not seen any activity for more than two weeks.
Apparently, would-be buyers in Europe were waiting for offers to fall further, reassured also by the absence of Asian interest. With demand weak, fuelled by reduced Asian buying, there is a significant amount of North Sea, Mediterranean and Nigerian oil in Europe, putting prices under further stress.
For instance, Indian Oil Corporation, the country’s largest state-run refiner, has reduced its run rate to 75% across its nine refineries, from 93% in the first week of July. Against this background, US oil is expected to continue flowing into Europe in August.