Page 9 - FSUOGM Week 12

FSUOGM POLICY FSUOGM
Nigeria slashes prices, joins suppliers’ war
NIGERIA
This is the first time Nigeria has offered its crude at such a steep discount.
NIGERIA will reportedly join Saudi Arabia in selling its oil at a significant discount to Brent, one of the world’s main benchmark crudes.
The West African country is gearing up to start selling Bonny Light and Qua Iboe grades at prices that are at least $3.00 per barrel cheaper than Brent in April, Bloomberg said on March 23. The news agency also published a graph showing that Bonny Light might be sold at a discount of around $3.25 to Brent next month.
This is the first time Nigeria has offered its crude at such a steep discount. Bonny Light and Qua Iboe are usually much closer in price to Brent, as they are gasoline-rich crudes with sig- nificant appeal for refinery operators. (They are also comparable in quality to Brent.)
That appeal has remained strong over the years. Even during the Great Recession of 2008- 2009, for example, the gap between Brent and Nigerian crudes stayed relatively narrow. In recent weeks, though, world oil prices have cratered.
Under pressure
At the beginning of this year, oil markets were already somewhat bearish because of sluggish demand and ample supply. Since then, they have become even more bearish, largely owing to the spread of the coronavirus (COVID-19) outbreak.
Initially, the virus raised questions about energy demand in China, the world’s largest oil importer. By mid-February, these concerns were serious enough that they led several OPEC members to call for at least 600,000 barrels per day in additional production cutbacks to sup- plement the 2.1mn bpd reductions that were already in force. But at the OPEC meeting on March 5-6, Saudi Arabia pushed Russia to accept an even deeper cut of 1.5mn bpd – and threat- enedtoabandontheOPEC+dealaltogetherand
let it expire at the end of March unless the latter agreed.
This gamble did not pay off. Russia refused to approve the additional cuts, saying it was only willing to keep existing production quotas in place. As a result, the OPEC meeting ended with no agreement – and with both Russia and Saudi Arabia vowing to pump more oil. Accordingly, crude prices sank by around 30% between March 6 and March 9.
Subsequently, officials in Moscow said that Russian producers would be able to raise output by 500,000 bpd in the short term, bringing this up to around 11.7-11.8mn bpd, and their coun- terparts in Riyadh spoke of pushing yields up by more than 2mn bpd to 12.3mn bpd. Saudi Arabia then began slashing the price of its crude by $6-8 per barrel, and Russia may follow suit.
Customers needed
Under these circumstances, Nigeria’s govern- ment is probably hoping that it can attract cus- tomers by offering oil at a discount. It may also be working to clear a backlog of unsold March and April-loading cargoes that have not found buyers yet.
Traders told Bloomberg, though, that this strategy might not prove successful. Currently, they said, demand is sufficiently weak that buy- ers may not want Nigerian oil, even at a lower price.
Nevertheless, Abuja’s decision could have consequences for European crude markets. If Bonny Light and Qua Iboe are selling at a dis- count to Brent, Bloomberg said, sellers of North Sea crudes will be under pressure to cut their prices too, a development that would reinforce the bearish trend on world oil markets. (This may already be happening, the news agency said, pointing to S&P Global Platts data showing that Forties crude prices had dropped to an 11-year low.)™
Week 12 26•March•2020 w w w . N E W S B A S E . c o m P9