The restive situation in the region may lead to a further drop in crude oil export as major refineries across the globe have concluded plans to stop the purchase of the commodity from Nigeria due to rising uncertainties about the country meeting up with deliveries.
This is arising from the fact that a number of oil companies in Nigeria had declared force majeure of crude oil export, while a few others had been forced to suspend or cut production as a result of the bombing of oil facilities across the Niger Delta.
According to data obtained from Reuters, four of Nigeria’s oil grades, including the largest stream, Qua Iboe, have been under force majeure over the last one month.
Force majeure is a legal clause that allows companies to cancel or delay deliveries due to unforeseen circumstances. The report stated that despite the fact that ExxonMobil, which declared force majeure on Qua Iboe in May due to an accident, lifted the declaration last week, the unpredictability is too much for some buyers.
The report further stated that refineries on the United States’ east coast were beginning to turn away from Nigerian crude oil, noting that these same refineries had been on a buying spree for Nigerian crude in recent months that averaged 240,000 barrels per day (bpd) in April and May. As a result, the report said differentials to dated Brent for Qua Iboe, Bonny Light and other grades were under downward pressure, adding that there were several unsold cargoes for June loading.
According to the report, the reduced demand means Nigeria is not benefiting as much as others from a rebound in Brent crude prices at current rate of over $51, which is partly driven by its own oil outages, stating that the reluctance of the refineries to buy Nigeria’s crude oil was limiting the prices Nigeria could get for its oil, even as there was less of it.
Specifically, the report stated that India’s HPCL was forced last month to cancel a vessel it chartered to carry two million barrels of West African crude due to the Qua Iboe force majeure, while India’s state-run Indian Oil Corporation Limited, a major buyer of Nigerian grades over the past year, had stated in its recent tenders that it would not take grades under force majeure, with Qua Iboe remaining off the list of the company.
Indonesia’s Pertamina, another frequent buyer, the report added, had also chosen not to buy Nigerian grades in its recent tenders, favouring Congolese Coco, Angolan Girassol and Saharan Blend from Algeria instead.
The report quoted oil traders as saying that Pertamina had shifted its preferences since the violence and uncertainty escalated, while Senior Vice President of the company, Daniel Purba, said the company was monitoring Nigeria, but noted that the situation was still currently not affecting crude purchasing.
Commenting on the development, one oil trader on the US east coast said: “When you plan your crude run months in advance and commit buying cargo, you need to be comfortable that the cargo will be there when you go to lift.” Similarly, Elizabeth Donnelley, Assistant Head of the Africa Programme at Chatham House, said: “The nature of the recently re-emerged militancy in the Niger Delta suggests it is here to stay for the foreseeable future.”
Also speaking, Olivier Jakob, Managing Director of PetroMatrix in Switzerland, said “not everybody wants to be caught up in that, so they will avoid it. The refineries will walk away from it.”
In a similar development, senior economist at Japan Oil, Gas and Metals National Corp, Takayuki Nogami, lamented, yesterday, that the recent fall in the Japanese oil market was a result of supply disruptions in Nigeria and Canada, following the Niger Delta militant activities. Nogami, in a statement, pointed out that the Japanese economy was on the double at the first quarter and was slow on consumer spending and weak exports which it experienced lately.
According to the statement, a downturn in the US crude inventories was noticed as the company expressed concern over attacks on Nigeria’s oil industry.