Low demand haunts Nigeria’s oil as unsold stocks hit 34m barrels

Written by Maritime First

…Fuel subsidy hits N2.4bn daily***

There are indications that international oil market is haunted by low demand as unsold Nigerian stocks have been estimated at between 20 and 34 million barrels.

A market survey by Platt showed that bidders for the country’s July-loading heavy and light sweet crudes were not present at the market. A trader, who preferred not to be named, said: “For the time being, it is extremely quiet. No one has tried to jump on these barrels.

Refiners are trying to reshuffle their needs. “Some refiners could be opportunistic about buying distressed cargoes,” another trader said. The survey showed that Akpo and Agbami, Nigeria’s best grades in terms of sulfur and gravity, have fallen to a seventh-month low as large quantities of oil from the June and July program remained unsold as traditional buyers sought alternatives. Akpo and Agbami were both last assessed at a 65 cents/b discount to Dated Brent, their lowest since November 13 when they hit the same level, S&P Global Platts data showed. Marketing barrels has been more difficult due to wide Brent-WTI spreads giving oil coming from west of the Atlantic Ocean a price advantage over Brent-related ones. However, Organisation of Petroleum Exporting Countries, OPEC, has expressed its commitment towards achieving increased market stability.

In its bulletin released, yesterday, OPEC stated: “Indeed, the organisation has been ‘midwifed’ to a collaborative decision among producers that before was never thought possible and which is unprecedented. ‘’With markets growing in complexity, the need for broader cooperation is more important than ever before. “Thus, this year’s OPEC seminar will provide a unique platform for enhancing cooperation, while also engaging in open discussions.

Additionally, the theme ‘Petroleum — cooperation for a sustainable future’ is certainly fitting, given today’s emphasis on major global challenges such as sustainable development, the environment and energy poverty.” “In addition, the ‘energy transition’ which was already a topic much debated at the biennial International Energy Forum meeting in New Delhi, India, in April of this year, will be the subject of much discussion. Understanding oil’s position in this rapidly changing landscape is important and it is sure to remain a topic of conversation for many years to come. More than 800 key players and decision makers will be on hand at this year’s seminar, including many ministers from OPEC and non-OPEC countries.

In the meantime, Nigeria may be losing the gains of increases in the international oil prices as the Federal Government subsidy on fuel has risen to N2.4 billion daily in May, from N774 million in March, 2018, also as a result of the high price of crude oil in the international market.

Unlike in March, this year, when the price of crude oil hovered at $66 per barrel, it had hovered between $75 and $80 per barrel since last month, thus pushing up landing cost of the refined product in the domestic markets for finished product importers like Nigeria. In a report obtained by Vanguard, the Petroleum Products Pricing Regulatory Agency, PPPRA, stated that without the government subsidy, the price of petrol could have been as high as N205 per litre in the domestic market. According to PPPRA, the price of the commodity appreciated by 8.47 per cent from N189 per litre recorded in April 25, 2018 to N205 per litre as at May 16, 2018. The PPPRA report disclosed that during the week under reference, between May 11 and May 16, 2018, oil prices continued to soar, stating that the average price for Brent Dated was $77.92 per barrel; Nigeria’s Bonny Light was $78.08 while West Texas Intermediate, WTI, was $60.27 per barrel.

Price of petrol is still fixed at a maximum of N145 per litre, meaning that the NNPC is currently paying N60 as under recovery for a litre of the commodity. Speaking with Vanguard on this issue, the Group General Manager, Group Public Affairs Division of the NNPC, Mr. Ndu Ughamadu said: “The explanation is simple. The higher the price of crude oil the higher the price of petroleum products in the international market. It should also be noted that this has also impacted on the landing cost, and by extension our under recovery.”

In a related development findings by Vanguard in Ogun state and other border communities showed that the situation is worsened by smuggling, as NNPC is now forced to subsidize the product for neighboring countries. Group Managing Director of the NNPC, Dr Maikanti Baru who led top management team of the corporation to visit Comptroller-General of Nigeria Customs Service, Col. Hameed Ali (retd), recently, had blamed the increase in fuel consumption on massive smuggling of petroleum products to neighbouring countries. Baru had also raised an alarm on the proliferation of fuel stations in communities with international land and coastal borders across the country, insisting that the development had energized unprecedented cross-border smuggling of petrol to neighbouring countries, making it difficult to sanitise the fuel supply and distribution matrix in the country.

He had revealed that detailed study conducted by the NNPC indicated strong correlation between the presence of the frontier stations and the activities of fuel smuggling syndicates. Providing a detailed presentation of the findings, the NNPC boss had noted that 16 states, having among them 61 local government areas with border communities, account for 2,201 registered fuel stations. He had said: “NNPC is concerned that continued cross-border smuggling of petrol will deny Nigerians the benefit of the Federal Government’s benevolence of keeping a fix retail price of N145 per litre, despite the increase in PMS open market price above N171 per litre.” Responding, Customs’ Comptroller-General had said the service would work with the NNPC to stem the tide of cross-border smuggling of petroleum products, noting that all hands must be on deck to ensure the economic survival of the country.


About the author

Maritime First