BEVERLY HILLS, April 17, (THEWILL) – Nigeria’s Bonny Light crude oil blend sold for about $12 and $13 a barrel this week, a major development that will negatively impact Nigeria’s earnings.
It costs the country about $22 to produce a barrel so the loses are already setting off alarm bells in the country.
Traders monitoring the West African crude market say about 10 million barrels of crude remain unsold this month despite the discount in price. Another 60 million barrels for the month of May may even be sold at a further discount. That represents a very slow pace of sales, and the region’s June loading programs are just starting to be released. The vast majority of unsold supplies are Nigerian rather than Angolan, and a big cause of the glut is because traditional European buyers have stopped purchasing because demand there has collapsed, Bloomberg wrote in a news report on its website Friday said.
The report citing the traders said even with prices deeply depressed long-haul buyers in Asiadon’t want cargoesbecause there’s also freight to pay and no real need for the barrels since demand has been obliterated because of the coronavirus pandemic.
The report also highlights Nigeria’s low onshore and offshore storage capacity for unwanted crude as one of the catalysts forcing the discounts. The country could run out of the storage if it does not find ships to take its crude.
A top executive of an indigenous trading company in Nigeria described the development to THEWILL as “a big shock for traders and the economy.”
Nigeria, which depends mainly on crude proceeds to fund its budget last week revised crude oil benchmark for the 2020 budget to $30 per barrel from $57. With foreign reserves at slightly above $33 billion today from $38 billion in January, the naira has been under pressure in the exchange markets.
The country sells its barrels at premiums or — more recently — discounts to Dated Brent, a physical North Sea crude price that’s published by S&P Global Platts. Dated Brent was at about $18.10 a barrel on Wednesday, and Bonny Light was $5.70 less than that, according to traders. That works out at about $12.40.
An official from the country’s finance ministry referred calls to Nigerian National Petroleum Corporation, the state oil company, the Bloomberg report said.
“The market is simply responding to the forces of demand and supply precipitated by the COVID-19 pandemic,” NNPC said in a statement. “We are working assiduously to guarantee a steady market for our crude in the short and long term.”
In the futures market, the nearest Brent contract is for June, which is about $3 cheaper than July. But with April barrels still available, those need to price at even deeper discounts to find buyers, the report said.
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