Wednesday, October 18, 2017

Nigerian producers eye India's new-found appetite for US crude

The competition that Nigerian crude oil cargoes has faced from US crude oil grades in Northwest Europe over the past two years has begun to expand into other regions, according to trading sources.
  • Largest buyer of Nigerian oil India importing more US oil
  • NNPC pragmatic on US crude threat
Since the US crude export ban was lifted in December 2015, there has been a gradual increase in shipments of US barrels to Northwest European and Mediterranean refiners, with the flow increasing sharply in recent weeks due to a wider Brent/WTI futures spread.

As Northwest Europe is a major demand center for Nigerian light sweet barrels, this could be a rather bearish development for Nigerian differentials.

In recent weeks, this competition has also extended east, with India increasingly looking to the US for its crude oil buy tenders.

India is the largest buyer of Nigerian crude and as such plays a crucial role in the direction of Nigerian crude differentials.

While the quantity of US crude being purchased by India companies hasn't yet impacted Nigerian differentials, West African crude traders said that it is another form of competition for Nigerian sellers to be aware of.

"There is competition from the US in India, but it's not big competition yet," said one WAF crude trader. "US crude is quite variable in quality and the Indians want to be certain about the quality they are getting. Some US cargoes are better than others."

This week, Indian Oil Corporation (IOC) issued a tender for one Suezmax or VLCC cargo of US crude loading in December, along with one Suezmax or VLCC of West African crude.

This followed news earlier in the week that the state-run company expected a second US crude cargo containing around 2.2 million barrels to arrive on the west coast by the end of October, company officials said Tuesday.

IOC, the country's flagship refiner, has contracted 3.8 million barrels of US crude since July. Indian refiners have purchased heavier MARS crude from the US, as well as light sweet barrels.

Other state-run refiners like Bharat Petroleum Corp. Limited (BPCL) and Hindustan Petroleum Corp. Limited (HPCL), which are also key buyers of Nigerian crude, have also recently purchased US oil.

Related video:Is India's appetite for US crude oil sustainable?

Representatives of Nigerian National Petroleum Corp. have been pragmatic about the threat posed by US crude, and have said that rising US exports have actually created opportunities for more Nigerian barrels to head to US Atlantic Coast refiners.

"In the short term we are not worried [about rising US crude exports] because we actually sell into the US today so there is a reverse flow of trade, going from Nigeria to the US," said Mele Kyari, general manager of state-owned NNPC's crude oil marketing division in a recent interview with S&P Global Platts.

So far this year, 17% of Nigerian crude exports have been to the US, Kyari said, which was a sharp rise from few years ago. Indeed, since the US started exporting crude in 2015, Nigeria's exports to the US have increased.

By comparison in 2014, only 3.1% of Nigerian exports went to the US, according to NNPC data.


For the moment, however, Northwest Europe remains the primary battleground for the competition between US and Nigerian light sweet cargoes.

With the Brent/WTI front-month futures spread trading around $5.60-5.70/b Wednesday, sources said that US crude remains an attractive proposition for Northwest European and Mediterranean refiners.

"US grades are a very good option for anyone searching for light grades considering the Brent/WTI spread...if you have a grade that is marked on Dated Brent then it will likely see dropping differentials," said a Nigerian crude trader.

According to traders, as much as 250,000 b/d of US crude is expected to land in Northwest Europe in October, which is around 100,000 b/d more than the amounts traders have seen for much of the year.

--John Morley,
--Eklavya Gupte,
--Takeo Kumagai,
--Edited by James Leech,

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