A Review of the Nigerian Energy Industry

OPEC’s reference basket declines by 1.2% in June

*Mohammed Sanusi Barkindo.

OpeOluwani Akintayo

13 July 2018, Sweetcrude, Lagos — The Organization of the Petroleum Exporting Countries, OPEC’s Reference Basket, ORB declined 1.2% in June, statistics from the group’s newly released Monthly Oil Market Report, MOMR for July said has disclosed.

However, oil prices remained within its three-year high at $73.22/b.

All ORB component values decreased over the month alongside their perspective crude oil benchmarks, with lighter grades slipping the most.

Meanwhile, the ORB ended the first half of the year significantly higher compared to the same period a year earlier.

Compared to the previous year, the ORB value in the first half of 2018 was 36.3%, or $18.21, higher than the same period in 2017 at $68.43/b.

Oil futures declined, with Intercontinental Exchange, ICE Brent ending lower, but stayed above $75/b. New York Mercantile Exchange, West Texas Intermediate, NYMEX WTI futures weakened more, due to high US oil supplies.

Oil prices mostly fell on expectations that OPEC and participating non-OPEC countries will gradually increase output to make up for the potential disruption to oil flows.

ICE Brent averaged $1.07/b, or 1.4% lower in June, at $75.94/b, while NYMEX WTI lost $2.66/b, or 3.8%, to average $67.32/b. Year-to-date (y-t-d), ICE Brent is $18.48, or 35.1%, higher at $71.16/b, while NYMEX WTI rose by $15.51, or 31.1%, to $65.46/b compared to the same period a year earlier.

The spread between the first-month NYMEX WTI and ICE Brent widened further by $1.60 in June to $8.62/b, the widest since the summer of 2015 on increasing US supplies.

Money managers increased their combined futures and options net long positions in NYMEX WTI month-on-month (m-o-m) by 66,560 contracts to 390,795 contracts on 26 June.

In ICE Brent, they slightly raised net long positions from 451,996 contracts to 453,218 lots on 26 June m-o-m.

The long-to-short ratio in ICE Brent speculative positions increased slightly from 6:1 to 7:1. However, in NYMEX WTI, the ratio increased sharply from 7:1 to 21:1.

The total futures and options open interest volume in the two exchanges was 451,496 contracts, or 6.6%, lower at 6.3 million contracts.

Regarding market structure, Dubai slightly eased the deep backwardation and Brent flipped back into backwardation.

In the U.S, WTI backwardation increased significantly to a fresh near four-year high on the tightness in supplies at Cushing.

The sweet/sour differentials narrowed significantly in Europe and Asia as the sour supplies tightened and demand increased, while in the United States Golf Cost, USGC the spread widened slightly.

Meanwhile, USGC crudes differentials to WTI firmed further as WTI’s discount to Brent surged.

The ORB declined from its highest monthly value in more than three years but remained well above $70/b.

Apart from Venezuelan Merey, all ORB component values decreased alongside their perspective crude oil benchmarks, with lighter African grades slipping the most, undermined by gloomy price differentials.

Meanwhile, the ORB ended the first half of 2018 more than 35% higher, swelling by $18.21/b y-o-y to $68.43/b.

Crude oil physical benchmarks Dubai, WTI and Dated Brent spot prices fell by 59¢, $2.19, and $2.68, m-o-m respectively, in June.

The light sweet crude Basket components from West and North Africa, Bonny Light, Congo’s Djeno, Es Sider, Girassol, Rabi Light, Saharan Blend and Zafiro values decreased on average by

$3.12/b, or 4%, m-o-m to $73.08/b in June.

In addition to the drop in the value of Brent, the losses in other crudes were compounded by the ongoing pressure on their price differentials due to plentiful supply amid increasing competition from US light sweet grades.

This is despite a significant improvement in the West Africa/Asia arbitrage economics amid a collapse of more than $2/b in the Brent-Dubai spread, as well as numerous outages.

Latin American ORB components Venezuelan Merey and Ecuador’s Oriente were little changed amid tighter supplies of sour crudes to the USGC due to lower Venezuelan exports.

Merey was up 96¢, or 1.4%, m-o-m at $69.25/b in June, while Oriente was down 34¢, or 0.5%, m-o-m at $70.05/b.

The value of multiple-region destination grades Arab Light, Basrah Light, Iran Heavy and Kuwait Export, which continue to benefit from ongoing increases in their official selling price, OSP on the back of the steeper backwardation in Dubai, slipped marginally by 49¢, or 0.7%, m-o-m to $72.56/b in June.

Middle Eastern spot components, Murban and Qatar Marine, also saw their values reducing slightly by 53¢, or 0.7%, m-o-m to $76.18/b and 42¢, or 0.6%, m-o-m to $72.94/b, respectively. These grades also benefited from higher spot premiums as robust demand in Asia kept spot premiums elevated.

On a monthly basis, the June ORB value decreased 89¢, or 1.2%, m-o-m to settle at $73.22/b. Y-t-d, the ORB value in 1H18 was 36.3%, or $18.21, higher at $68.43/b compared with the same period in 2017.

On 10 July, the ORB stood at $76.34/b, $3.12 above the June average.

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