Nigerian crude oil may be experiencing more troubles in the international market, with its value remaining listless as demand dries up, with about 10 cargoes unsold in the July loading programme, informed sources have said.
Platts website reports traders as saying demand for the remaining cargoes had slowed considerably, since the middle of last week, putting a slight dampener on value.
Refining margins were still decent, according to some traders, but demand for Nigerian grades had mostly ground to a halt and incremental buying was very weak.
“Margins are going sideways but nothing is cooking at all on light West African grades since,” said a source.
“The market is quite lethargic,” said a trader. “I reckon we still have about four to five June and 12-14 July cargoes unsold, so it is still quite heavy.”
Other traders however said the number is now likely to be less than ten. Most traders said the weak demand was due to the large number of light sweet barrels already in Europe and this was putting pressure on values.
“The problem is that there is still a sweet overhang in Europe and margins are not supportive enough to justify an increase in runs, so the offers will have to come down in order for barrels to clear, rather than bids stepping up,” said a trader.
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Nigeria’s flagship Qua Iboe was slightly weaker, as sources said there were still two cargoes remaining, out of the July programme.
Qua Iboe was assessed at Dated Brent plus $2.26/barrel down $0.04/b , according to Platts data.
“I will still call the market [Qua Iboe] between Dated Brent plus $2/barrel and $2.50/barrel,” said a trader. “But values are probably edging to the bottom end of the range if they cannot be sold.”
Commenting on the issue, Claire Lawrie , Partner, Africa Advisory Oil & Gas Lead, Ernest and Young, said Nigerian crude differentials have taken a drop, given faltering of demand for light sweet grades in Europe and with Asian refiners.
She said the sluggish economic growth in the Eurozone and with growth appearing to slow in Asia Pacific and within the BRIC economies is feeding speculation on the oil price impact. Many commentators are seeing $80 as a realistic outcome of this demand reduction.
Nigeria government revenue – which is highly hydrocarbon dependent, she said is at risk if the lower price materialises. She however stated that in the short term, switching crudes to Nigeria’s many other export markets will help alleviate the situation.
Observers said this could have serious implications on government revenues, as crude oil is the country’s mainstay.
Nigeria crude oil revenues are collapsing, not so much from falling crude oil prices, but a significant plunge in oil production, as result of failure in government strategy, or lack of the same, according to analysts .
With the country GDP having grown steadily at about 7 per cent per annum over the last 10 years and with a population of 160 million, analyst say the country’s domestic energy thirst will increasingly eclipse export capacity in the future.
Oil production for the first quarter of 2013 has averaged 1.9 million barrels per, 22 per cent below the 2.52 million barrels per day crude oil production assumption for the 2013 budget. The drop in oil production is affecting government revenue.
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