What could have ignited this buying spree for West African crude?

After long periods of overhang, there is a sudden rush for West African crude grades raising new trading opportunities. Sales of Nigerian cargoes have been slow this year. About 25 out of 60 Nigerian cargoes scheduled for October export remain unsold, while trading will switch to November shipments when new programs are released.

The jump in trading activity comes at a time when Nigerian crude are being squeezed by the rise of US shale. Most Nigerian crudes are light and low in sulfur and have therefore been hit hard by surging output of US crudes with similar geological properties. Not only has the US cut imports from Nigeria, but some traditional buyers, such as Taiwan’s CPC Corp., have also turned to American grades.

Over the past six sessions, BP bought about 7.6 MMbbl of Nigerian crude, including four Qua Iboe for loading from mid-October to early-November. There will be a total of nine shipments of Qua Iboe in October, a previously unseen volume in the West African crude market, where a whole month can sometimes go without a single public bid or offer in the Platts window.

But what could have ignited this buying spree? Two of the world’s biggest oil companies (BP & Vitol) stepped up buying and selling of West African crude. The sudden gush in activity has surprised many participants in a West African market where cargoes are typically transacted privately.

BP does not produce oil in Nigeria and has not been a large trader of Nigerian oil in recent years, although it has bought some cargoes for its refining system. However, it quietly built a long position of up to 10 million barrels in the African CFDs contracts in August, betting the premium of the grades to Brent will rise in September.

In reaction, Vitol spent over $500 million to buy seven cargoes outside the Platts system from oil majors Total and Shell, paying premiums above $1.70 per barrel, according to traders familiar with the developments.

While Nigeria and Angola are clear beneficiaries in this flurry of activities, market participants say the main losers will be the refineries especially European refiners as the developments may have raised their costs.

“This is very bad from a refiners’ perspective. Every seller is now asking high prices,” according media reports.

As a huge refiner of crude, BP could either try to resell the barrels it bought, or process them in its own plants. That is where it has huge advantage over Vitol.

FRANK UZUEGBUNAM