Nigeria’s 2018 budget of N8.6 trillion which is expected to be majorly funded through revenue from crude oil is already facing serious threat as U.S. crude oil is flooding into Asia, and may continue to do so far into the fiscal year 2018.
The nation’s economy may also run into trouble if its managers are not proactive to address this development by looking for a way of mitigating the effect of crude oil revenue fall that may come from the U.S action.
“International Oil Companies, IOCs, Indian’s flagship refiner, has contracted 3.8 million barrels of US crude since July. Indian refiners have purchased heavier MARS crude from the US, as well as light sweet barrels. “Other state-run refiners like Bharat Petroleum Corp. Limited (BPCL) and Hindustan Petroleum Corp. Limited (HPCL), which are also key buyers of Nigerian crude, have also recently purchased US oil.’’
An unnamed Nigerian crude trader stated, “US grades are a very good option for anyone searching for light grades considering the Brent/WTI spread if you have a grade that is marked on Dated Brent then it will likely see dropping differentials.”
India refineries, biggest buyers of the Nigeria crude had earlier in the year indicated that they may turn to the U.S as alternative to Nigeria crude because of frequent delay or disruption of supply from Nigeria.
Indian Oil Corporation (IOC) issued a tender for one Suezmax or VLCC cargo of US crude loading in December, along with one Suezmax or VLCC of West African crude, plats had stated, according to plats.
At the peak of the Niger Delta militant activities last year Nigerian crude could not get to many prospective buyers including India buyers because the country’s daily production was curtailed by militants activities which resulted in the vandalisation of the pipelines for crude oil exports.
Commenting on this development, Eddy Wikina, managing director of Treasure Energy Resources and former External Affairs Relation Manager of Shell Nigeria Exploration and Production (SNEPCO), he said: “ I am not surprise at what has happened. U.S.A has been active investing in hydrocarbon and need market to sell it. We are sleeping here in Nigeria. No hope for Nigeria because when she was supposed invests in hydrocarbon she refused and said she would be looking into alternative energy source. Oil is still our cash cow and we need to refocus our mind and go back and invest it to get the money we need to develop alternatives to oil”.
But Dolapo Oni, an analyst with EcoBank told BusinessDay that the issue of middlemen which are responsible for the sales of Nigeria crude is a major setback for the country because the top the price of the crude oil. He said the price of Nigeria crude oil in some cases is costlier than those of her counter parts from Middle East and other places. This development, he says very often turn off potential buyers.
According to Reuters at that time it became likely that U.S. exports to Asia would ramp up given that WTI’s discount to the global benchmark light crude, Brent, widened to $5.46 a barrel at closing prices on Aug. 29.
This was enough of a gap to overcome the higher freight rate to ship from the Gulf coast to Asia, compared to similar grades of crude from African producers such as Angola and Nigeria.
WTI’s discount to Brent had been just $2.48 a barrel at the end of July, which made it harder to make a profit shipping U.S. crude to Asia.
But instead of narrowing back as refineries recovered along the U.S. Gulf coast after Harvey and started processing crude again, WTI’s discount to Brent has remained at elevated levels.
A record amount of U.S. crude is scheduled to arrive in Asia in November, according to vessel-tracking and port data compiled by Thomson Reuters Oil Research and Forecasts.
The data show 19.7 million barrels of U.S. oil is due to arrive across Asia in November, equivalent to about 657,000 barrels per day (bpd). The data are filtered to show only vessels that are currently underway, and those that are discharging or have discharged their cargoes.
This is more than a 50 percent jump on the 427,000 bpd that was offloaded in Asia in October, and also above the previous record-high month for U.S. crude shipments to Asia of 541,000 bpd from June.
It also appears that December will be another month of strength, with 11 vessels carrying a combined 16.5 million barrels of crude already en route from U.S. Gulf ports to Asia.
When Hurricane Harvey struck the U.S. Gulf coast in late August one of the initial impacts was a drop in the price of West Texas Intermediate (WTI), the main U.S. light crude grade.
