Nigeria’s Crude Faces Glut Over U.S. Shale Production

Indications emerged yesterday that the sale of Nigeria crude oil in the international market is currently facing challenges due to surging production of United States shale crude, which experts say has similar geological properties.

According to loading programmes compiled by Bloomberg, about 25 out of 60 Nigerian cargoes scheduled for October export remain unsold, while trading will switch to November shipments next week when new programmes are released.

Another factor said to be impacting negatively on the country’s crude sales is the stoppage of crude imports from Nigeria by the US, which used to be the highest importer of Nigeria’s crude.

Also, some other traditional buyers of the country’s crude, such as Taiwan’s CPC Corp., have turned to American grades.

Similarly other trading partners such as India are said to have, in recent times, reduced the volume of crude they import from Nigeria.

This development is coming on the heels of reports that two of the world’s biggest oil companies, BP and Vitol Group, are stepping up buying and selling Nigeria’s crude at the same time as a new regional swaps market has emerged, as merchants seek new ways to eke out profits in a tough trading environment.

Over the past six sessions, BP bought eight cargoes, including four Qua Iboe, for loading from mid-October to early-November. There will be a total of nine shipments of Qua Iboe in October,” the report stated.

Bloomberg said its data reveals that, over the past week, BP bought 7.6MMbbl of Nigerian crude from Vitol Group on a pricing window run by S&P Global Platts, doubling the entire activity of the past seven years.

Bloomberg sources with knowledge of derivatives said associated swaps market had taken hold over the past two months, with as many as 8MMbbl transacted.

The sudden spurt in activity has surprised many participants in a West African market where cargoes are typically transacted privately.

It comes at a time when oil traders are struggling to make money in challenging markets. BP made a rare and unusual loss in oil trading in the second quarter as it was wrong-footed by wild gyrations in U.S. markets.

According to Bloomberg, the cash-settled swaps have attracted interest from oil majors and trading houses, with contracts equivalent to 5 to 8MMbbl changing hands since trading began two months ago, according to estimates from people involved in that market.

“As many as eight companies bought and sold the derivatives”, they said. BP and Vitol were both said to have declined comment on the issue.

The swaps used to hedge or speculate on prices are based on a basket of four Nigerian grades, namely Qua Iboe, Bonny Light, Forcados and Bonga, which are among the largest export grades from the country.

The derivatives allow a buyer to exchange a fixed price for a floating one published by Platts. That means a bidder might profit if Platts assesses that the West African market has strengthened.

Under normal circumstances, Nigeria is said to make shipments of the four grades flow at a rate of about 700,000 to 1 MMbpd, the loading programmes compiled by Bloomberg revealed.

Source: Wall Africa

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