A Review of the Nigerian Energy Industry

Buyers shun Nigeria’s January 2015 crude cargo

Crude oil tanker
Crude oil tanker

23 December 2014, Sweetcrude, Houston – Nigerian crude cargoes for January loading are struggling to sell with almost half of the program still available due to very weak demand with an oversupply of sweet crudes, market sources said.Asian and European demand for Nigeria and other West African cargoes has been slow so far, exacerbated by high freight rates and the availability of cheaper sweet crudes in both regions.

Activity on Nigeria was slow especially for key grades such as Qua Iboe, Bonny Light, Bonga and Forcados.

Some niche grades like Akpo, Usan and Agbami have sold decently but the whole Nigerian sweet crude complex was being dragged down by the weak demand.

“The market is in disaster mode,” said a trader. “There is just no demand for these Nigerian grades at the moment. There is too much oil to choose from. Even the Azeri Light values are coming crashing down.”

Nigeria’s flagship grade Qua Iboe was assessed at Dated Brent plus $0.72/b on Monday, the weakest since April 24, 2009, Platts data showed.

Traders said there were still more than 30 Nigerian January loading cargoes unsold, and with the Nigerian February program expected later in the day, differentials were expected to fall steadily if demand did not materialize.

“The arbitrage east is almost closed and the OSPs in Middle East are very cheap. The Brent/Dubai spread is wide. There are plenty of alternatives for (Asian) refiners instead of WAF. And, the European refiners are spoilt for choice,” the trader added.Sources said some offer levels for Qua Iboe, Bonga and Erha had been quite high and as a result a standoff was observed with no buying interest heard at these levels. Despite weak demand some of these offer levels had not yet come off.

Qua Iboe was still heard offered at Dated Brent plus $1.20/b and sources said with the provisional February program due later in the week, values could fall sharply if these cargoes did not trade.

A second trader said: “The Angolan January program is sold out thanks to the Chinese but on Nigeria, we still have almost 40 million barrels left [including] some December barrels on storage. The market is very long, in WAF and in the Med.”

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  • Sam

    There are strong demands for Nigerian Crude oil, mostly Bonny Light. Buyers are scared of fake sellers because only 10 out of 100 offers out there are real. Even no buyer wants to give BCL again. Also, demands for RWA from buyers banks by Bonny Terminal is driving buyers away as well. Buyers are now demanding for TTO as a trial order out of West African waters to guarantee their products. We have buyers who can buy 4Million bbls on monthly basis but, they want trial order out of west African waters. NO FOB, NO QnQ in Nigerian waters.

  • Tunmishe Oke

    Sam, the 200 exponential moving average for the best crude in the world is $43.50 per bbl and trends down beyond that for the winter months, so I don’t know about this demand thing you are talking about. Even if you can sell it you will be selling at a loss because of all the added expenses of Nigerian crude. Good luck (no pun intended) to Nigeria.

    • Sam

      Oke, Nearly 80% of refineries are demanding for Bonny Light bcoz it can be easily refined to all petroleum products. My partners are working with refineries and after their OPEC quotas with NNPC, they are demanding for OFF OPEC and they can not come directly. These refineries need to buy through traders or their appointed agents. Those agents will not give instruments until they have done a trial deal with a particular seller from Nigeria. Agents or traders are not willing to do FOB or TTO in Nigeria waters because of what they have gone through. My company and my partner are representing about 3 of them presently. We will take any vessel in Ghana waters on TTO (DIP TEST & PAY). The reason why many vessels are sitting on Nigeria waters is that, Terminal guys and some govt officials are now taking up ATS themselves to sell without past performances. “30 Nigerian January loading cargoes” mentioned in this article does not belongs to allocation holders. It belongs to NNPC directly and officials are using the opportunity to fill their own pocket.

    • aauhm

      Oke can you contact me aauhm@netzero.com i can get your partners off opec allocation

  • There are a number of issues at stake.
    First the Chinese used to be a good country to sell to but because of corruption charges few are courageous enough to succeed. The Chinese have also stopped honoring contracts. I personally know three sellers that have delivered to China only to be forced to renegotiate the contract after delivery. One was not paid.
    So no sellers in their right mind are willing to send crude to chine. They have to buy on TTO.
    There is a logistics and timing problem right now.
    The price of Crude has dropped 40% since June. That is 1.66% per week. Short deliveries take two weeks, to China it can take up to 42 days. Because China has failed to honor its contracts it now has to buy TTO Ghana. That means China has to be willing to absorb 4 weeks of price declines. When a country shoots itself in the foot it will be limping for a while.

    Europe has had the same problem, only in a different way. The real buyers (refineries) have a margin problem. They can not afford to take a risk by placing a banking instrument to guarantee delivery. Nigeria can not afford to send product two or three weeks away in hopes of getting paid.

    Buyers have to be willing to place a banking instrument if they want the product delivered to them.

    Then we have the resellers and trading houses. They think a seller has to be prominent, experienced and willing to show other buyers documents, which the NNPC would never approve of. At the same time they want to use the sellers product and the end buyers credit, while taking no risk of their own. If a seller has to take all of the risk on their own shoulders then the intermediary is providing no value in the marketplace, and the seller then might as well just deliver directly to the refineries and avoid all the mess in the middle.

    I personally know of one seller that loaded 6 vessels, contracted 12 times for TTO Ghana, sent out 12 ATBs, and nobody showed up to do the dip test. Sellers best not take a risk exporting product without the buyers bank instrument or they will find themselves quickly bankrupt.

    We will only show a buyer a loaded vessel. If they want product that is what they can get and then they have to be willing to step up and guarantee that they will pay.

    We even have buyers that come to us expecting the seller to load a vessel for them BEFORE they sign a contract. That kind on nonsense does not mean the world is turning its back on Nigeria, it means the world does not have a backbone to start with.

    If a company wants to make several million dollars on a delivery it is going to have to take some risk to justify the reward.

    Step up and be a man or go away. Simple.

    • Henry Ohakwe

      Very insightful and educative comment. Thanks man

    • Isaac Ayodeji

      Hello Jeff,
      Pls what’s your company’s name?

  • Yele

    The truth of the matter is there is just an oversupply of crude in the market and Asia that has become the beautiful bride of every seller is spoilt for choice. As it relates to Nigeria, there are also added indicators that do not favour us, from a logistics standpoint, Angola who is our competitor in the region is closer to Asia so it makes sense for Asian buyers to buy from there and reduce their logistics cost. These issues and of course the price war going on between OPEC and non OPEC countries which will linger for a while longer are the real underlining issues. Corruption isn’t the sole reason for reduced cargoes been sold to Asia, it is a two way street afterall and you can’t completely rule them out in crude transactions but they can be managed. Nigeria has to use this opportunity to earnestly adopt measures in diversifying their economy through Agriculture and the exploitation of our solid minerals and reduce our over dependence on oil.