A Review of the Nigerian Energy Industry

Nigeria: Oil exports to dip in February

Crude oil export vessel
Crude oil export vessel

25 December 2014, Lagos – Nigerian crude oil exports in February are set to fall to around 1.87 million barrels per day (bpd) from around 2.03 million bpd in January, shipping lists showed on Tuesday.This is just as the Kingdom of Saudi Arabia, the swing oil producer, has maintained that the Organisation of Petroleum Exporting Countries, OPEC, will not cut production even if the price of oil drops to $20 a barrel, adding that it will be unfair to expect the cartel to reduce output if non-members do not.

According to Reuters, Nigeria’s export levels for February are expected to be lower due to less of the benchmark Qua Iboe grade, traders said, citing expected maintenance by ExxonMobil at its Eket terminal.

However, exports levels were still higher than for much of 2014, as there was relatively strong production of other Nigerian grades such as Brass River (Agip) and Bonga (Shell).

Traders said the programme was not small enough to provide much support to differentials which remained around five-year lows.

In the meantime, OPEC will not cut oil production even if the price drops to $20 a barrel and it is unfair to expect the cartel to reduce output if non-members do not, Saudi Arabia has said.

“Whether it goes down to $20 a barrel, $40, $50, $60, it is irrelevant,” the kingdom’s Oil Minister Ali al-Naimi said in an interview with the Middle East Economic Survey (MEES), an industry weekly.

In unusually detailed comments, Naimi defended a decision by OPEC, whose lead producer is Saudi Arabia, last month to maintain a production ceiling of 30 million barrels per day.

The decision sent global crude prices tumbling, worsening a price drop that has seen them fall by around 50 per cent since June.

Slower demand growth and a stronger dollar have also contributed to the slump. Saudi Arabia has traditionally acted to balance demand and supply in the global oil market because it is the only country with substantial spare production capacity, according to the International Monetary Fund (IMF).

The kingdom pumps about 9.6 million barrels per day but Naimi said it is “crooked logic” to expect his country to cut and then lose business to other major producers outside OPEC.

The increasingly competitive global oil market has seen daily United States output rise by more than 40 percent since 2006, but at a production cost which can be three or four times that of extracting Middle Eastern oil.

“Is it reasonable for a highly efficient producer to reduce output, while the producer of poor efficiency continues to produce?” Naimi asked during the interview conducted with MEES at the weekend.

“If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, US shale oil producers will take my share.”

Naimi added it is “unfair” for the cartel to reduce output because it is not pumping most of the world’s oil.

“We produce less than 40 percent of global output. We are the most efficient producer. It is unbelievable after the analysis we carried out for us to cut,” he said.

Arab countries that export crude oil have stated that they expected global oil prices to rebound to between $70 and $80 per barrel by the end of 2015 as a global economic recovery revives demand.

Despite the stance of Saudi Arabia, the Arab OPEC, specifically known as Organisation of the Arab Petroleum Exporting Countries (OAPEC) met in Abu Dhabi to discuss the global energy dynamics in the face of tumbling crude oil prices.

In the first strong indication of where the group expects oil markets to stabilise in the medium term, the Arab OPEC delegates, some of whom are from core Gulf OPEC producing countries, said they may not see – and some may not even welcome now – a return to $100 any time soon.

Once deemed a “fair” price by many major producers, $100 a barrel crude is encouraging too much new production from high cost producers outside the exporting group, some sources said.

But they believe that once the breakneck growth of high cost producers such as US shale patch slows and lower prices begin to stimulate demand, oil prices could begin finding a new equilibrium by the end of 2015 – even in the absence of any production cut by OPEC, something that has been repeatedly ruled out.

“The general thinking is that prices can’t collapse, prices can touch $60 or a bit lower for some months then come back to an acceptable level which is $80 a barrel, but probably after eight months to a year,” one Gulf oil source told Reuters.

A separate Gulf OPEC source said: “We have to wait and see. We don’t see 100 dollars for next year, unless there is a sudden supply disruption. But average of 70-80 dollars for next year – yes.”

The comments are among the first to indicate how big producers see oil markets playing out next year, after the current slump that has almost halved prices since June.

Their internal view on the market outlook will provide welcome insight to oil company executives, analysts and traders, who were caught out by what was seen by some as a shift in Saudi policy two months ago and have struggled since then to understand how and when the market will find its feet.

To be sure, there is no suggestion that OPEC is targeting a specific price, or would want to do so. The group hasn’t had a formal price goal in about a decade, and Saudi Arabia has long maintained that it is only seeking price stability, not a set level.
*Chika Amanze-Nwachuku & Alike Ejiofor With Agency Report

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