Traditional buyers of Nigerian crude are going for cheaper options, leading to the emergence of France as the country’s leading customer.
Top crude grades of Africa’s biggest oil producer, Bonny Light, Forcados and Brass, have a reputation for being light in sulphur, a quality that has made them the darling of refineries in Europe and Asia.
But the country’s traditional big buyers from India to China are increasing their purchase of US crude, Russian crude and Latin American oil because they see the Nigerian grades as relatively pricey, with traders reluctant to offload the country’s cargoes.
The development poses a risk to Nigeria, which relies on oil exports for more than half of its total foreign exchange earnings.
Data gathered by BusinessDay showed India purchased N1.3 trillion of Nigeria’s crude oil in the first quarter of 2024, a decline from an average of N2 trillion purchased between 2018 and 2021.
“Buyers are increasingly turning to cheaper alternatives, raising concerns for the country’s revenue stream,”Aisha Mohammed, a senior energy analyst at the Lagos-based Centre for Development Studies said.
France now biggest buyer
The latest tanker-tracking data monitored by Bloomberg showed India is buying more American crude oil as Russian energy flows dwindle amid sanctions.
India’s state-owned oil refiners Bharat Petroleum, Indian Oil, and the country’s leading private refiner Reliance Industries, snapped up nearly seven million barrels of April-loading US crude oil, the largest monthly inflow since last May, traders who asked not to be identified told Keper, a global trade intelligence firm.
Russian crude flows to India surged after the invasion of Ukraine and the OPEC+ producer is still the biggest supplier to the South Asian nation, but tighter US sanctions have stranded cargoes and discounts have narrowed. India has also ramped up purchases recently from Saudi Arabia.
“Given the issues faced with importing Sokol in Russia, it’s no surprise that Indian refineries are turning toward US WTI Midland as their light-sweet alternative,” said Dylan Sim, an analyst at industry consultant FGE.
India’s imports of Russian crude in February were at around 40 million barrels — or almost 30 percent of the country’s overall oil and condensate purchases, according to data compiled by Bloomberg. In 2023, Russia’s share of the Indian market accounted for 39 percent on average.
“With ongoing fluctuations and a focus on cost-effectiveness, buyers are prioritising oil sources with lower price tags. This puts Nigerian oil, known for its slightly higher sulphur content, at a disadvantage,” a source in international trade business told BusinessDay.
NBS data showed France overtook the Netherlands (a major European refining hub), as the biggest buyer of Nigerian crude oil, purchasing products worth N2.5 trillion in the first quarter of 2024, while Netherlands’ imports from Africa’s top producer was valued at N1.5 trillion.
Spain and India occupied second and fourth positions as they purchased Nigerian crude worth N1.72 trillion and N1.3 trillion respectively as of March 2024.
BusinessDay’s findings showed West African barrels are typically put on the market about six weeks before their loading month, underlining the sluggish pace of sales for Nigeria’s May supplies.
About 10 cargoes of the country’s crude for May loading were still available for purchase, according to the median estimate of three traders specialising in the trade.
Prices of rival suppliers such as Azeri Light and West Texas Intermediate have also weakened for rival suppliers to Europe’s plants,
“We’ve got much weaker margins so Nigeria’s crude demand is taking a hit,” said James Davis, director of short-term oil market research at FGE.
Nigeria’s lag was also driven by sellers seeking premiums over the Dated Brent benchmark that proved too high for refiners in Europe, according to Energy Aspects Ltd.
May cargoes were at a premium that didn’t work that well into Europe, but lower offers have seen volumes move,” said Christopher Haines, EA global crude analyst. “Stronger forward diesel pricing is also helping.”
Some Nigerian grades were being priced more competitively, including Qua Iboe to Asia and Bonny Light to the Mediterranean or East, with the overhang slowly reducing, Sparta Commodities said in a note earlier this week.
“Reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government,” Charles Ogbeide, energy analyst with a Lagos-based investment bank said.
