Foreign refineries to stop buying Nigeria's crude oil due to activity of militants
Thu Jun 09, 2016 07:17:am Business
3.2K By Buchi Obichie
Nigeria's crude oil export ability has just taken a big hit 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 due to the restive situation caused by the activities of militants in the Niger Delta region.
Increased bombing of oil installations have forced a number of oil companies in Nigeria to declare force majeure of crude oil export, while a few others have been forced to suspend or cut production as a result of the bombing of oil facilities across the Niger Delta.
A Reuters report shows that 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, without being in breach of agreements.
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 due to volatility in the region, is too much for some buyers.
Going further, the report stated that refineries on the United States' East Coast which had been on a buying spree for Nigerian crude in recent months that averaged 240,000 barrels per day (bpd) in April and May, were now beginning to turn away from Nigerian crude oil.
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 Iboeforce 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.
One oil trader on the US east coast commented on the development, saying: "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."
Increased bombing of oil installations have forced a number of oil companies in Nigeria to declare force majeure of crude oil export, while a few others have been forced to suspend or cut production as a result of the bombing of oil facilities across the Niger Delta.
A Reuters report shows that 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, without being in breach of agreements.
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 due to volatility in the region, is too much for some buyers.
Going further, the report stated that refineries on the United States' East Coast which had been on a buying spree for Nigerian crude in recent months that averaged 240,000 barrels per day (bpd) in April and May, were now beginning to turn away from Nigerian crude oil.
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 Iboeforce 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.
One oil trader on the US east coast commented on the development, saying: "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."
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