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| Kaduna Refinery |
The cut in the prices of the country’s
crude oil grades, Bonny Light and Qua Iboe, by the Nigerian National
Petroleum Corporation may prompt other oil exporters to cut their crude
prices in a bid to attract buyers, industry experts have said.
The experts said Nigeria must be strategic in its approach to pricing of its crude relative to competing crudes.
Nigerian crude that normally sells a
month ahead of delivery is said to be currently stored on ships and
storage terminals without buyers. Around the world, Nigeria’s barrels
have had trouble competing with cheaper products from the Middle East.
Other
crude grades from South and Central America are equally entering the
Asian market and displacing Nigerian crude cargo because it is cheaper
and the Asian refineries are able to process any type of crude.
India, which recently replaced the United
States as the single largest importer of crude oil from Nigeria, has
reduced its import of Nigerian crude as its demand for Latin American
crude is growing sharply.
In a bid to attract buyers, the NNPC
lowered the official selling price for its largest crude oil stream, Qua
Iboe, to dated Brent plus 35 cents per barrel, the lowest differential
since May 2005, according to Reuters.
Bonny Light fell to dated Brent plus 23
cents. That the smallest differential since 2005 and compares with a 50
cent premium in June and $2.55 a year earlier, data compiled by
Bloomberg show.
The Group General Manager, Public Affairs
Division, NNPC, Mr. Ohi Alegbe, told our correspondent on Monday that
it was an alignment of 30 cents across board.
Alegbe said in an interview with our
correspondent, “It is not a slash in price; it is an alignment of 30
cents across board. There is market volatility and you want to sell what
you have.”
The Chairman and Chief Executive Officer,
International Energy Services Limited, Dr. Diran Fawibe, said, “Nigeria
has to sell its crude oil to willing buyers with secondary
consideration to traditional differentials.”
Fawibe, who was the general marketing
manager responsible for marketing Nigerian crude oil in the world market
at the NNPC, added, “Given the discounts being granted by Gulf
producers, Nigeria must be strategic in its approach to pricing of its
crude relative to competing crudes.”
For the Head of Energy Research, Ecobank
Capital, Mr. Dolapo Oni, the move by the NNPC is long overdue, but is
likely to have been pre-empted by the considerable amount of overhang in
Nigerian oil cargo currently.
He said Nigeria’s oil was being priced
out of its key markets by cheaper Latin American crude oils even as the
United States’ imports had dropped below 50,000 barrels per day.
Oni added, “It is also indicative of the
fact that perhaps the NNPC is looking to compete for market share
alongside other OPEC countries that are ramping up oil output.
“Although the lower oil price is likely
to attract buyers such as India and Indonesia, it could also provoke
similar price cuts by other oil producing countries in the West Africa
region, which could spark further decline in oil prices.”
The global benchmark, Brent crude, which
recently rose towards $67 per barrel, traded around $62 per barrel on
Monday. The Organisation of Petroleum Exporting Countries at its meeting
early this month failed to cut production quota to prop up prices.
Oni said because other exporters were
likely to make similar cuts, the move by the NNPC might not give the
country a competitive edge.
According to him, because Nigeria sells a
premium crude grade, the discount automatically imposes similar
obligations on other heavy or sour crude grades, which typically sell
lower than Nigerian crude grades.
“I think the key move that can give us a
competitive edge will be to firm up our relationship with our key buyers
in India, Netherlands, Spain, France and Indonesia. We also need to
target the blending opportunities offered by Brazil, Canada, Venezuela
and other heavy oil producers,” he said.
On the downside risk posed by the move,
Oni noted, “The key impact is on our revenue. The size of this discount
could prompt buyers to ask for more cuts as it reinforces the notion
that we are in a buyers’ market. Thus, we could see our oil revenue
decline on lower oil prices.”
Nigeria, Africa’s top oil exporter, is
grappling to retain its market share, especially in Asia, where it saw
an increase in the import of its crude oil last year, after it lost
business in its main market, the US.
The country’s crude oil cargo has been
selling at a discount in the past few months amid growing competition
from other sellers, including Saudi Arabia.
The President of the Venezuelan state oil
company, PDVSA, Eulogio Del Pino, had recently said that Nigeria,
Algeria, Angola and Iran were interested in blending their light oil
with his country’s heavy oil to get a better price for their crude.
He had in April announced talks on a
novel plan to blend the country’s heavy crude with light oil from other
OPEC allies seeking to create a new variety that could compete against
swelling the US and Canadian supplies.
The proposal, which will expand on a
pilot scheme embarked upon last year that involved Algerian oil,
envisions supplying refineries built for medium-grade crude rather than
the light oil that has become plentiful as a result of the North
American shale boom.
Source: Punchng
