Low oil demand will impact the global economic growth trajectory

…As Nigeria, others face rising competition from US oil exports

Ugo Amadi

Depressed oil demand coupled with production supply cuts and price fluctuations will impact the economy’s growth trajectory, according to multinational professional services network PricewaterhouseCoopers (PwC).

According to PWC’ Global economic outlook in 2019, a surge or sudden drop in the price of crude could pose problems for the World economy as Nigeria’s investment climate will also be dampened in the short-term by uncertainty usually associated with the pre and post-election cycles in the country

Foreign investors have expressed their concerns over investing in the electioneering era, as politics which shapes most economies took center stage

As at now, Nigeria’s crude oil and condensate production has fallen almost 50% from the start of the year to around 1.1 million b/d, an official from state oil firm Nigerian National Petroleum Corporation. said after reports of a fresh attack on an oil and gas pipeline in the Niger Delta.

“The waves of attack on virtually oil pipelines and production facilities in the western division of the Niger Delta have crippled operations there,” the NNPC said

“We estimate total production losses to be around 1 million b/d, so we are currently down to 1.1 million b/d,” he added. Renewed militancy in the oil-rich Niger Delta has resurfaced after years of relative calm, pushing the country’s output to more than 20-year lows.

NNPC said production was averaging around 2.2 million b/d at the start of the year. In mid-May, oil minister Emmanuel Kachikwu said that production had plummeted to 1.4 million b/d, and since then attacks on oil infrastructure have continued, pushing output down further.

Currently, four Nigerian crude export grades — Qua Iboe, Bonny Light, Brass River and Forcados — are under force majeure. All of these grades except for Qua Iboe are under force majeure as a direct result of the militant attacks.

However, rising imports of US crude oil into Asia in the past few months will bring stronger competition in the months ahead for crudes from Nigeria and other West African countries, traders have said.

S&P Global Platts reported that the market sources highlighted the March loading programme for Nigeria.

Nigerian crude has had a difficult time clearing for several weeks, as offer levels were too high to attract buying interest from European refineries, which have been suffering from poor refinery margins on naphtha and petrol.

“What is more worrying is a structural change in the supply of US crude to Asia. It seems like more Asian buyers are increasingly terming US crude,” a crude oil trader said.

The quick price correction of Nigerian grades and narrow Brent-Dubai Exchange of Futures for Swaps spread has aided several Nigerian grades such as Agbami, Qua Iboe and Akpo to find homes in Southeast Asia. However, market sources had said the narrow EFS would not be enough to buoy the April programme.

“Looking at the WTI/Dubai and the WTI/Brent spreads, WAF will have to compete with US grades going to the East,” one market source said.

“Arbitrage economics remain highly favourable for more US crude purchases. The latest OPEC cut seems to be keeping the Dubai price complex relatively expensive,” a senior official at Seoul-based Korea Petroleum Association said.

Several sources have pointed to a similar picture for some of the lighter Angolan grades such as Girassol, Kissanje and Cabinda.

All Angolan grades across the light to the heavy spectrum have been performing extremely well in the March trading cycle as a result of increased buying from Chinese refiners prior to Chinese New Year, as well as newly allocated import quotas for Chinese teapot refineries and a narrow EFS.

However, trading sources had increasingly said the April trading cycle would look different. Some traders said April would only be supportive for selected Angolan crudes going into China, as Eastern buyers would be more focused on which grades were more desired at home.

“Heavy grades will be supportive, but light ones such as Cabinda and Girassol will be under pressure,” a trader said.

Such a development would put lighter Angolan grades under pressure due to heightening competition from US barrels, which are priced on a heavier discount compared to grades priced against Dated Brent.

Freight costs from the US Gulf Coast to Asia have fallen by about a third since early December, making the case for greater loadings of US crude to the region. Whereas freight from West Africa to Asia have increased recently, making it currently about 70 cents per barrel more expensive to bring Angolan crude to the market.

Around 17 VLCCs have been fixed to load crude from the US Gulf Coast to Eastern destinations for February-loading cargoes, shipping reports showed, with many more likely booked outside of reported fixtures.

According to S&P Global Platts trade flow software cFlow and shipping reports for January-loading cargoes, 16 VLCCs were seen carrying US crude from the US Gulf Coast to Eastern destinations.

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