Global oil glut leaves Nigeria with bruises all round

Amidst the escalating and bruising duel between US shale producers and the Organisation of the Petroleum Exporting Countries (Opec) oil production, not many have been punished as hard as Nigeria, highlighting a challenge for the petroleum cartel ahead of its meeting on Friday.

The West African nation has lost business in its main market in the US and is struggling to gain footholds elsewhere, raising a question for Opec over whether its decision to fight for market share may have left behind more vulnerable members like Nigeria which recently elected a new leader in Muhammadu Buhari who once headed the petroleum ministry and may cling on to it this time around.

Once a highly desired, easy-to-refine product, Nigeria’s oil popularly called Bonny light, is now hard to sell. In 2014 Bonny Light fetched more than $2 a barrel more than the global benchmark, Brent crude, according to Opec data.

This year, that premium has plunged to 74c, on average — the lowest in a decade and much worse, Nigerian Bonny Light cargoes that normally sell a month ahead of delivery have languished without buyers. In early May, as much as 80-million barrels of Nigerian and Angolan crude were still seeking buyers, according to Barclays.

“Nigeria is in immense pain,” Energy Aspects chief oil analyst Amrita Sen said.

Opec last year abandoned its traditional role of propping up prices through production cuts, figuring that surging US production would depress prices no matter what it did and opting to fight for market share instead. Within Opec, Ms Sen said, Nigeria had been the worst affected by these changes. And with profligate spending during the years of Goodluck Jonathan, it means Nigeria failed to save and was dismal at building critical public infrastructure when oil prices averaged over a $100 a barrel, analysts say.

Nigeria’s plight highlights divisions within Opec as the group’s ministers begin arriving in Vienna this week. Venezuela, Algeria and Angola have also struggled, while wealthier Opec members such as Saudi Arabia and Kuwait ramp up production and lock down buyers in Asia.

Nigeria’s flagship crude oil,  Bonny Light, is similar to US shale oil. It is generally called “light and sweet” because of its low sulphur levels and low density, which means it will flow easily at room temperature and is more easily refined into high-value products such as petrol and diesel.

US refineries have generally moved to buy the cheaper, easier-to-access local version, rather than importing Nigerian product in recent years. Imports of Nigerian crude oil into the US have plummeted from nearly 1-million barrels a day in 2010 to less than 60,000 barrels a day in 2014, according to the US Energy Information Administration.

Around the world, Nigeria’s barrels have had trouble competing with cheaper products from the Middle East. It has found buyers in India and Europe, but some new and hi-tech refineries in Asia prefer to run different oil grades, leaving Nigeria in need of a new core customer base. That has made it difficult for Nigeria’s government to balance its budget.

Oil accounts for almost 90% of Nigeria’s exports and about 75% of its consolidated budgetary revenue, according to the World Bank. The International Monetary Fund predicts Nigeria’s oil exports will be worth $52bn this year, down from $88bn in 2014.

Deutsche Bank said Nigeria needed oil prices at $87.90 to balance its budget, a level most oil analysts do not see happening soon.

Sarah Kent, WSJ