Nigeria opened a new front in the oil price war between some of the world’s largest OPEC+ countries, offering to sell its crude in April at unusually large discounts in an effort to undercut its rivals. Even so, traders said the West African country may not have gone cheap enough.
Nigeria now the poverty capital of the world has no fiscal buffers after years of giving the people nearly free fuel and electricity and forex and now Africa’s most populous nation faces a double whammy of a wild spread of Coronavirus and inability it fund its 2020 budget.
Exports of Qua Iboe and Bonny Light crude — two banner Nigerian grades — will be sold in April for discounts of more than $3 a barrel to the international Dated Brent benchmark.
Even in the depths of the 2008-09 recession, neither grade was sold anywhere near as cheap, but a collapse in demand caused by the coronavirus — and a pricing war led by Saudi Arabia — has changed everything.
The new front in the price war is important because in previous battles for market share, such as in 1985-86 and 1998-99, it was West African oil producers who finally broke the market after discounting their crude.
West African crude competes directly with oil pumped in the North Sea, which is a benchmark for crude worldwide.
If Nigeria and other regional producers discount their crude significantly below North Sea Brent, it will force the Brent market to follow, piling downward pressure on prices.
Some of that was already in evidence on Monday with Forties crude trading at the lowest in 11 years on a price-discovery window organized by S&P Global Platts.