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| Nigeria's oil is finding itself cut off from buyers; some 30 million barrels of it has yet to sell, with more loadings due within a week and output steadily rising |
Nigeria, one of two OPEC
countries completely shielded from any cuts to its oil production, was in line
for a windfall from the group's agreement late last month to shore up the price
of crude.
Reuters
report continues:
Instead,
the beleaguered West African nation is struggling to sell its rising oil
production as higher benchmark prices slammed shut trade routes and did little
to stem an excess of light, sweet oil, leaving millions of unsold barrels.
The
decision in November by the Organization of the Petroleum Exporting Countries
to trim output sent benchmarks soaring; dated Brent is now more than 20 percent
above mid-November lows. The price boost was good news for oil producers from
Texas to Indonesia.
Nigeria,
which has been battling militant attacks in its oil-producing Delta region, got
a reprieve from cuts along with Libya, which has been pumping at around a
quarter of its capacity for much of this year due to its own political turmoil.
But
rather than a gold-lined gift, Nigeria's oil is finding itself cut off from
buyers; some 30 million barrels of it has yet to sell, with more loadings due
within a week and output steadily rising.
"They've
just closed their shutters," one trader said of potential buyers.
"There's no arbitrage," the trader added, referencing potential trade
routes to other regions.
One
catch is that the spike in dated Brent, the baseline on which Nigerian exports
are priced, made U.S. barrels comparatively cheaper and more attractive.
Because
U.S. producers were not part of any cut, the discount of their West Texas
Intermediate benchmark doubled relative to Brent to US$2.44 a barrel on
Nov. 30, the day of the deal, and still stands at more than US$2.
This
opened a flood of exports from the United States to Asian buyers who might
otherwise take Nigerian oil, and boxed Nigerian oil out of its outlet at
refineries on the U.S. East Coast.
Tighter Market for Sour
The
other issue is that because Nigeria and Libya are some of the only OPEC
producers of "light" crude, nearly all of the cuts will come from
"sour" crude, which though usually less valuable because of its
higher sulphur is now in demand as buyers await a tighter market for it.
"Buyers
are loading as much sour (crude) as they can. The light sweet is not as
interesting - there is a glut of it," said Andrew Wilson, head of energy
research with BRS Brokers.
BRS
Brokers said there were nearly 12 million barrels of light North Sea oil unsold
in ships at the time of the OPEC deal. This whittled down to just under 3
million, but rising production of light crude from Libya, Kazakhstan and Russia
means buyers have a suite of choices - and could steer clear of a country whose
exports are still seen as unreliable.
"If
they start taking crude from Nigeria again, they're not sure they'll get it
next month," Wilson said.
Still,
even if they are forced to cut price differentials and wait longer to find
buyers, Nigeria stands to make some US$9 million more for each exported cargo
following the deal, which is no small salve to a country battling an economic
crisis.
"They're
getting some benefit from the higher flat price," said Olivier Jakob,
managing director of PetroMatrix. The slow sales, he said, "show the need
for those cuts - the oil needs to move".
"If they are respected,
the physical impact would be later. It will take some time."
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