Shale producers are after Nigeria’s Europe, Asian markets

Nigeria is struggling to sell its August crude loadings as shale producers having run Africa’s biggest oil producer out of the US market, are now going after her traditional turf – oil markets in Europe and Asia.

U.S. oil exports surged 260,000 barrels per day in June to a monthly record of 3.16 million bpd. This is 10 percent of OPEC’s 29.42million barrels per day produced in July and almost twice Nigeria’s output in the period.

According to the U.S. Energy Information Administration data, Nigeria did not export a drop of oil to the US for three weeks in July. Worse still, Nigeria’s low sulphur crude grade that is easy to refine for petrol which confers on it some advantages have been all wiped out by shale producers from the US Permian basin.

Shale producers after taking over the US market which accounted for the biggest oil demand last year at about 540,000 bpd.

A Reuters report quoted IHS Markit data which states that Europe has imported around 46% of Nigeria’s oil since the beginning of 2019, India nearly 18%, and the rest of Asia about another 10%.

“They’re facing bigger competition from the U.S., and in the last few weeks, U.S. exports have really picked up,” one major buyer of West African crude told Reuters.

As many as forty cargoes for export in August were still in need of buyers when Nigeria began publishing its preliminary programme for September exports beginning on Jul. 18.

This situation has stern implications for Nigeria’s economy. Africa’s biggest oil-producing country needs the oil price to rise and in the worst case, remain steady at any price above the $60 benchmark of the 2019 budget which have an estimate of N6.97trillion revenue. The price decline has sparked a fresh wave of concerns on the implication to the federal government’s economic projections for 2019.

“An Oil prices below $60 will have an impact not just on Nigeria’s fiscal numbers but also on external sectors account. It means our current account balance will swing into a deficit once again in 2019 which will further lead to capital outflow pressures from foreign investors,” Abimbola Omotola, analyst at Chapel Hill Denham management limited said.

Gbolahan Ologunro, an equity research analyst at Lagos-based investment firm, CSL Stockbrokers Ltd said Nigeria is at risk of another recession,  which is why the  likes of IMF and World Bank have been clamoring for the need of government  to set up its fiscal buffers in 2019 so as absolve  shocks like this.

When oil prices found a floor around $40 in the first quarter of 2016, the Nigerian economy slid into a recession and the CBN began restricting scarce forex for what it considers important items and began to artificially prop the naira to maintain exchange rate stability. The long-term effect of these control is an economy with weak growth.

“Within six months if we don’t see an improvement in oil prices it means that foreign investors will begin to get worried and we might see a massive outflow of funds from our fixed income instruments or investment,” Ologunro told BusinessDay.

The raging trade dispute between Washington and Beijing sent oil prices plunging earlier last week, with international benchmark Brent crude dropping to a seven-month low of $57 a barrel, the lowest since January and down 26 per cent since April.

Also, the International Energy Agency (IEA) said outlook for oil demand growth is “fragile, with a greater likelihood of a downward revision than an upward one,” citing fears of an economic downturn as the U.S.-China trade war casts a shadow over markets.

ISAAC ANYAOGU & DIPO OLADEHINDE