By Sebastine Obasi

EXCEPT it finds buyers as soon as possible, the Federal Government’s capacity to finance the 2015 National Budget has been further reduced, as demand for Nigeria’s crude drops in the Asia market. The development increases concern of higher budget deficits in the current financial year.

Thus, a glut of unplaced Nigerian crude is expected to flow to Europe after weak buying from Asia for Nigerian and West African light sweet crudes over the past month has left a large overhang of March, April and May cargoes.

This was the finding of Platts, a leading global provider of energy, petrochemicals, metals and agriculture information, and a premier source of benchmark price assessments.

According to Platts, demand from Asian buyers especially India, the biggest buyer of Nigerian crude has been on the wane for May cargoes, and traders expect more Nigerian crude to land in Europe in coming months.

Recall that Vanguard had exclusively reported last month that Nigeria risked losing its Asian crude market to the Arab oil producing countries, warring over market shares in the wake of the crash in oil prices, thereby offering huge discounts to either retain their shares or attract new buyers.

Focus on Europe

Platt noted that the focus on Europe has been further enhanced by reduced interest from Nigeria’s other regular customers like Brazil, Indonesia and South Africa. The information expert also explained that the European market is more trading oriented rather than tender based as in the East, giving the necessary flexibility for sellers to negotiate their outstanding cargoes while afloat.

West African (WAF) crude differentials have been falling in the past month as sellers tried to attract buying interest. But buyers are holding back in expectation of even lower prices. More specifically in Nigeria, “values are definitely coming off,” a trader said.

There are still March cargoes on the water and a significant chunk of the April programme is outstanding despite coming close to loading time. “Most of the available cargoes will float to Europe in order to minimise the pain,” the same trader said. “From the moment a Suezmax is loaded, the charterer has 8-10 days before deciding on diverting to the US, without an additional demurrage cost,” a WAF equity holder said.

The current freight rate at Worldscale 72.50 is also boosting the floating storage strategy for companies. Moreover, others said as long as the land storage is full, these cargoes have to be put on ships. Platts quoted a trader as saying, “I’m extremely bearish and I think differentials will drag lower this week. Buyers are in control and, as they are seeing multiple offers for the same grade, they are unlikely to get worried about missing their requirements.”

Furthermore, refiners currently had good margins, traders added. The lack of May trading activity was also heard weighing on the market. Only 25 percent of the Nigerian May programme had so far been placed, according to Platts cargo tracking data. The Nigerian flagship Qua Iboe differential dropped from Dated Brent plus $1.80/barrel March 17, to Dated Brent plus $1.40/b April 8. The arrival of more WAF cargoes in Europe and the Mediterranean may also have an impact on other crude sources.

West African exports

WAF exports to Europe are typically refined in the Mediterranean region, but falling Suezmax freight costs and reducing WAF differentials are even encouraging Nordic refineries to look at running the grades, it was noted. “At the moment, (Nigerian grades) don’t seem to be making it, but they are moving in the right direction,” said one Nordic refiner. “We’re close to having them competitive to other local grades.”

Some Nordic refiners find grades with high middle distillate yields interesting in part because it makes it easier to meet the more stringent environmental regulations they are subject to.

According to Platts, in Norway, ExxonMobil’s Slagen refinery regularly loads Ceiba crude from Equatorial Guinea, a grade in which ExxonMobil has equity. But the country is generally a low volume buyer of WAF crude compared to other countries. Finnish refineries have not directly imported a cargo from West Africa in the last four years, according to Platts ship tracking software Flow.

It also noted that in Denmark, Statoil’s Kalundborg refinery imported a cargo of crude from Antan, Nigeria, a small niche grade, offloading April 6. It’s first purchase of Antan crude since October 2013, according to Flow data.