Nigeria and other West African crude sellers have been dealt a big blow by key buyer India slowing down its purchases as the COVID-19 pandemic continues to ravage the world’s third-largest oil consumer. The nation’s 2021 budget faces funding issues except the government’s borrowing plan succeeds. The federal government has requested for yet another $6.1 billion external loans to fund the 2021 budget. India’s state-owned refiners typically issue tenders for a large proportion of their crude requirements, but with the latest wave of COVID-19 infections in the country still raging, no new tenders have been issued since late April, according to trading sources.
Refiners such as Indian Oil Corporation, Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd usually buy significant amounts of Middle Eastern and Nigerian crudes through regular tenders. But the last such buy tender was awarded by HPCL on April 23 for crude loading from West Africa in early June, according to S&P Global Platts data. IOC last bought crude loading mid-to-late June in a tender that closed April 15. The refiner has since cut run rates across its refineries to an average of 88%, company officials said May 12. The run rate across its nine refineries was 96%-98% in the first half of April. Indian refineries typically consume a diet of sweet and sour crudes, and the country is the single-largest buyer of Nigerian crude. Over the past few months, most of the sweet crude requirements have come from Nigeria, where oversupply has forced sellers to offer their oil at relatively economical prices.
“Tenders are for incremental needs only. Baseload volume is always Middle Eastern crude and that is secured through term contracts,” said a trader with a South Asian refinery. Some of its recent purchases have included Nigeria’s Agbami, Akpo, Bonny Light and Forcados, as well as Gabon’s Oguendjo. Indian refiners also buy WAF crudes through term contacts with producers including Nigeria, Angola, Equatorial Guinea and Gabon. Recently, Dubai-linked crudes from the Middle East have been made more attractive by a wide spread between the Dubai and Brent crude benchmarks. Through April and May to date, the front-month Brent-Dubai Exchange of Futures for Swaps or EFS has traded above $3/b, the widest it has been since late 2019.
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India is a large buyer of Nigeria’s Agbami, Akpo, Bonny Light, and Forcados. According to private sources, there are about 5 shipments of Nigeria Bonny deferred into June with 2 of them already delayed from April. When cargo is “deferred,” it does not mean that there was some kind of logistical issue, it generally means that no buyers were found. A source confirmed that “the problem with the lack of demand for Nigeria’s oil coincides with the fact that the US has been exporting a lot of light crude oil – which competes with Nigeria’s oil.” He further added, “despite the deals Nigeria has with India, the Indian refineries are simply not buying now because of COVID.” Additionally, because of the demand issues in India, there is a consequent storage concern so most of the refined products are headed to South-East Asia. A local supply and demand imbalance is brewing in this region. Other reports confirm that sellers of Nigerian crudes are now seeking other buyers in Asia and Europe as India’s COVID-19 situation remains shrouded in uncertainty amid stringent regional lockdowns and sagging domestic consumption.
“Three weeks without [Indian Oil Corp.] weighs dramatically on Nigeria. IOC is the biggest Nigerian grades buyer,” a trader said. IOC skipped the last decade of June loading window and now seems to have skipped July 1-10 also,” according to another source. According to trading sources, India’s state-owned refiners typically issue tenders for a large proportion of their crude requirements, but with the latest wave of COVID-19 infections in the country still raging, no new tenders have been issued since late April. This has affected West African crude sellers. There is a possibility that demand can come from Indonesia, Taiwan or Thailand. According to a report there is an opportunity for low-cost Nigerian crude that is likely to seem attractive to refiners in Thailand who also need their share of sweet crude for refinery processing. That demand could help clear unsold June-loading cargoes, with traders estimating around 25-28 Nigerian cargoes unsold in the month as the July trading cycle looms. Hopefully, demand from Europe increases as well because currently, WTI light crude dominates the European market and Nigerian oil is priced out of it. Nigeria needs oil money as it represents a large part of its earnings.
