The impact of falling oil prices has stalled almost half of
Nigeria’s crude oil cargo due to be exported in January, said a Reuters
report.
The situation, according to experts, is further complicated as oil prices plummet to the $50s trough, $15 below Nigeria’s benchmark price.
According to Reuters, the backlog has pushed Nigerian oil differentials versus Brent to their lowest since 2009, at 65 cents a barrel, down 80 percent since May, said Reuters in its report.
The report indicated that the scenario is also creating discount frenzy between African and Gulf oil producers to Asian buyers
Asia has become a hotspot for a price war between African and Gulf oil producers who, hobbled by bulging global supplies and waning demand, are offering steep discounts to defend their market share in the world’s top net crude buying region.
The competition is welcome news for Asian buyers because if oil stays near $60 per barrel, import costs for the world’s No.2 oil consumer, China, would drop to under $125 billion a year, versus $222 billion in 2013 when crude averaged $110.
But for producers it means more competition, and African sellers like Nigeria and Angola, faced with precarious finances due to plummeting oil prices, are struggling to make inroads into Asia, a Middle Eastern stronghold.
“There is competition between West African and Middle East suppliers for the Asian markets, but the Middle East suppliers have the cost advantage,” said
Low operating costs in Saudi Arabia, Kuwait and the Emirates already allow these countries to offer hefty discounts.
Now, a more than 50 percent jump in freight rates between West Africa and China since September is adding to the relative advantage of Middle Eastern grades, which require shorter shipping distances to Asia and this has been a big setback for West African producers.
West African exports got a brief boost in August when Brent’s premium to Middle East crude narrowed to less than $2 per barrel from almost $5 in June.
But with Middle Eastern producers now offering even more competitive prices, the advantage has faded.
“A year ago, a $2 premium would have been attractive, but in today’s environment it’s different,” a trader dealing with West African crude said.
West African producers traditionally sold most of their oil to North America and Europe, but exports dwindled given the entry of shale oil from the United States and higher output from nations outside the Organization of the Petroleum Exporting Countries (OPEC).
West African crude exports to Asia rose more than 4 percent between January and December, Reuters data shows. China accounted for most of the rise as it took advantage of low prices to build up oil reserves.
But the higher West African arrivals into Asia were mainly due to sales before October, and have dropped since then due to Middle East discounts.
Middle East producers continue to dominate the Asian oil market, with Saudi Arabia, the United Arab Emirates and Kuwait all increasing shipments to the region since 2012.
The Middle East accounts for around half of China’s imports; Africa has a 25 percent share.
With pricing an advantage for Gulf producers, one hope for West Africa is China’s drive for diversification in order to avoid over-reliance on Middle Eastern oil, JBC Energy said.
But analysts are skeptical about the sustainability of steep discounts as producers need higher prices to finance their budgets.
“Governments that underpin their budgets with oil or metals have seen currency values plummet, reserves erode or current account deficits rise … Regimes built on oil wealth will come under pressure,” risk consultancy and insurance brokerage, JLT Group, said in its 2015 outlook.
The situation, according to experts, is further complicated as oil prices plummet to the $50s trough, $15 below Nigeria’s benchmark price.
According to Reuters, the backlog has pushed Nigerian oil differentials versus Brent to their lowest since 2009, at 65 cents a barrel, down 80 percent since May, said Reuters in its report.
The report indicated that the scenario is also creating discount frenzy between African and Gulf oil producers to Asian buyers
Asia has become a hotspot for a price war between African and Gulf oil producers who, hobbled by bulging global supplies and waning demand, are offering steep discounts to defend their market share in the world’s top net crude buying region.
The competition is welcome news for Asian buyers because if oil stays near $60 per barrel, import costs for the world’s No.2 oil consumer, China, would drop to under $125 billion a year, versus $222 billion in 2013 when crude averaged $110.
But for producers it means more competition, and African sellers like Nigeria and Angola, faced with precarious finances due to plummeting oil prices, are struggling to make inroads into Asia, a Middle Eastern stronghold.
“There is competition between West African and Middle East suppliers for the Asian markets, but the Middle East suppliers have the cost advantage,” said
Low operating costs in Saudi Arabia, Kuwait and the Emirates already allow these countries to offer hefty discounts.
Now, a more than 50 percent jump in freight rates between West Africa and China since September is adding to the relative advantage of Middle Eastern grades, which require shorter shipping distances to Asia and this has been a big setback for West African producers.
West African exports got a brief boost in August when Brent’s premium to Middle East crude narrowed to less than $2 per barrel from almost $5 in June.
But with Middle Eastern producers now offering even more competitive prices, the advantage has faded.
“A year ago, a $2 premium would have been attractive, but in today’s environment it’s different,” a trader dealing with West African crude said.
West African producers traditionally sold most of their oil to North America and Europe, but exports dwindled given the entry of shale oil from the United States and higher output from nations outside the Organization of the Petroleum Exporting Countries (OPEC).
West African crude exports to Asia rose more than 4 percent between January and December, Reuters data shows. China accounted for most of the rise as it took advantage of low prices to build up oil reserves.
But the higher West African arrivals into Asia were mainly due to sales before October, and have dropped since then due to Middle East discounts.
Middle East producers continue to dominate the Asian oil market, with Saudi Arabia, the United Arab Emirates and Kuwait all increasing shipments to the region since 2012.
The Middle East accounts for around half of China’s imports; Africa has a 25 percent share.
With pricing an advantage for Gulf producers, one hope for West Africa is China’s drive for diversification in order to avoid over-reliance on Middle Eastern oil, JBC Energy said.
But analysts are skeptical about the sustainability of steep discounts as producers need higher prices to finance their budgets.
“Governments that underpin their budgets with oil or metals have seen currency values plummet, reserves erode or current account deficits rise … Regimes built on oil wealth will come under pressure,” risk consultancy and insurance brokerage, JLT Group, said in its 2015 outlook.
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