Fighting market share: Nigeria slashes crude oil prices

The Nigerian National Petroleum Corporation (NNPC) has reduced the prices of Nigeria’s crude oil grades, Bonny Light and Qua Iboe, to their lowest points in over a decade. The NNPC in a statement said it will sell July supplies of Bonny Light crude at 23 cents more than Dated Brent. This, according to oil trading sources, was the smallest differential since 2005 and compares with a 50 cent premium in June and $2.55 a year earlier.

The NNPC also lowered the official selling price for Nigeria’s largest crude oil stream, Qua Iboe, to dated Brent plus 35 cents per barrel, the lowest differential since May 2005. The decline, according to reports, was due to declining demand for the country’s crude oil in the international market.

The action, according to oil traders, was engendered by the need for the country to join in the fight for market share. As much as 10 million barrels of Nigerian grades stranded on high seas are taking months in some cases to find buyers. Sellers of Nigerian crudes have aggressively pushed into new markets from Uruguay to China, but are coming up against other crude producers, including fellow members of the Organization of the Petroleum Exporting Countries, as well as new refineries that are geared towards heavier oil.

Surging output from US shale formations contributed to a market glut that drove crude almost 50 percent last year, roiling global markets as producer nations lost revenue and foreign-exchange reserves. While oil has pared losses this year, prices are still below what some producers including Nigeria and other OPEC members need to balance their budgets.

The slump in prices last year forced authorities in Nigeria, which relies on oil for about 70 percent of its income, to scale back budgeted spending and devalue the naira currency.

The US has bought an average 30,000 barrels a day of Nigerian crude this year, data from the Energy Department show. It shipped almost 1 million barrels a day from the African nation in 2010, according to the data.

As sales to the US slip, Nigeria is vying with OPEC members including Saudi Arabia and Kuwait for customers in Asia, which the Paris-based International Energy Agency predicts will account for about a quarter of global oil demand this year.

Last month, Nigeria, Africa’s top oil producer overtook Saudi Arabia as India’s top oil supplier for the first time in at least four years. Indian refiners are said to be switching from long-term contracts with Middle East suppliers to cheaper African crudes through spot market.

The shift comes as the gap between the international benchmark Brent and the Middle East price marker narrows. The premium for Nigerian crude over Brent has plummeted in recent months, making it more attractive.

India, which recently replaced the US as the single largest importer of crude oil from Nigeria, had in December 2014 cut its import of the Nigerian crudes by 38 per cent, according to data from the Nigerian National Petroleum Corporation.

Saudi Arabia, the world’s top crude exporter, also fell behind Russia and Angola as the biggest crude supplier to China last month, official data showed this week. The Middle East country’s failure to maintain its position in some markets comes despite leading a strategy by the Organisation of the Petroleum Exporting Countries to keep output high to drive out competitors.

The share of African oil, mainly from Nigeria and Angola, jumped to 26 per cent of India’s total imports in May, up from around 15.5 per cent in April and the highest in more than four years, according to tracking data on tanker arrivals. At the same time, the Middle East share fell to 54 per cent in May from 61 per cent, with Saudi Arabia supplying some 732,400 barrels per day compared with Nigeria’s 745,200 bpd.

OPEC’s 12 nations pumped more than their self-imposed limit of 30 million barrels a day for the past 12 months, as they seek to defend market share.

FRANK UZUEGBUNAM