Amid the uncertainties thrown up by the coronavirus pandemic, prices of Nigeria’s benchmark crude oil grade, Bonny Light is going for cheap and trading at a significant low at an average of $12.
According to traders monitoring the West African market, Nigeria’s bonny light traded at $22 on the futures market, however, given the $8 to $9 discount between physical (spot) and Futures (paper) markets, prices were forced lower to an average of $12.
The development means that the current selling price is below the cost of production for Nigerian crude producers, which is estimated at $22 and below the budgeted crude benchmark of $30 per barrel.
Also, Nigeria’s Bonny light is $16 lower than the value of the global benchmark if crude oil, Brent crude, which stands at $28, as at Sunday 19 April.
“Nigeria’s Bonny Light and other light sweet crude oil grades across the world are facing challenges in the international market as they are no longer appealing to buyers,” Charles Akinbobola, an energy analyst at Sofidam Capital said.
Findings by BusinessDay revealed Light crude grades with low density and sulphur are the preferred brand by marketers. But now, given that they are hard to store for long period of time, they have lost favour with buyers in the face of low oil demand and market overhang that had necessitated prolonged storage.
Also, light crude grades are mostly used to make naphtha, gasoline and jet fuel, refined products that are both out of favour due to the coronavirus pandemic and the low demand it had orchestrated.
While gasoline and jet fuel do not store for long due to their high quality, seasonality and additives, diesel, fuel oil and heavy crude can be stored in tanks for years.
Traders also report that 10 million barrels of crude made available for sale in April are still unsold with another 60 million expected to hit the market in May.
The vast majority of unsold supplies are Nigerian, traders said, and the glut is made worse because of the drop in demand from traditional European buyers.
Reports say it is not just West African oil markets that are struggling in the Atlantic Basin. Principally due to so much European demand halted by the virus, grades in the North Sea and the Mediterranean are also affected.
Despite the historic supply cut by the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) of 9.7 million bpd, lockdowns in most cities of the world have led to a drop in demand for crude oil.
For instance, a large part of Europe, that constitute the major market for Nigeria, has gone into lockdown mode to combat the coronavirus pandemic. In addition, even with lower oil prices, long-haul buyers from Asia do not want oil cargoes because there are also shipping costs to pay and no real need for the oil barrels since demand has plunged.
For Nigeria, that could become a particular challenge, since the country has very little space to store supplies if they’re unwanted.
According to IHS Markit, Nigeria will run out of storage space quickly if it doesn’t find ships to take its oil.
Africa’s biggest oil producer suffering a cash crunch which has seen it begin to deplete its reserves, review downwards its budget benchmark and slash recurrent and capital budget.
Nigeria relies essentially on crude oil to fund its budgetary and address numerous other fiscal concerns. It also represents about 90 per cent of Nigeria’s source of foreign earnings.
Earlier in the month, the federal government cut down the 2020 budget by over N320 billion and proposed a new budget of N10.27 trillion. This was against the N10.59 trillion passed by the national assembly.
DIPO OLADEHINDE
