Nigeria’s crude falls to $12 as millions of barrels remain unsold

Nigeria’s premium crude oil grade, Bonny Light, dropped to about $12 or $13 per barrel this week, according to traders monitoring the West African Market.

The profoundly low level reveals the yawning gap between the prices offered by oil producers and benchmark futures contracts like Brent, which stood at around $28 on Friday.

A large part of Europe, the main market for Nigeria’s crude, has been locked down in an effort to contain COVID-19.

“Even with prices deeply depressed though, long-haul buyers in Asia don’t want cargoes because there’s also freight to pay and no real need for the barrels since demand has been obliterated,” Bloomberg reported.

This could prove a major setback for Nigeria considering that it a pretty little space to store unwanted supplies.

“That seems to be the first real point of a bust, with no onshore storage, so it has to go onto ships,” Spencer Welch of IHS Markit said.

The prices are far below the cost of producing oil in Nigeria, which is around $22 per barrel and even lower than its fiscal breakeven, the minimum price per barrel that the country requires to meet its expected spending needs while balancing its budget.

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Fitch ratings put this at around $133 a barrel. Petrodollar accounts for 65% of government revenue 90% of Nigeria’s foreign exchange earnings.

IHS Markit envisaged that the country would run out of storage space soon if it failed to get ships to take its oil.

Nigeria sells its barrels at premiums but in recent times at discounts to Dated Brent, a physical North Sea crude price published by S&P Global Platts.

Dated Brent stood at around $18.10 per barrel Wednesday while Bonny Light was $5.70 less according to traders or $12.40 a barrel.

“The market is simply responding to the forces of demand and supply precipitated by the COVID-19 pandemic.

“We are working assiduously to guarantee a steady market for our crude in the short and long term,” the Nigerian National Petroleum Corporation said in a statement.

According to West African traders, 10 million barrels for sale in April were yet to be sold 13 days to the end of the month.

The May’s figure is as much as 60 million barrels. It represents a very slow progress in sales just as the region’s June loading programs are just beginning to be released.

Bloomberg observed that “it’s not just West African oil markets that are struggling in the Atlantic Basin either. With so much European demand halted by the virus, grades in the North Sea and the Mediterranean are also pricing aggressively to clear.”

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