Nigeria and her African counterpart, Angola, are having their problems arising from the dwindling prices of crude oil further compounded, as Saudi Arabia made deep cuts to its monthly oil prices for European buyers ,while it trimmed prices for U.S. refiners and increased rates for Asia.
Almost half of Nigeria’s cargoes due to be exported in January are still available.
The backlog has pushed Nigerian oil differentials versus Brent to their lowest since at least 2009 BFO-QUA at 65 cents a barrel, down 80 percent since May, said Reuters. And it is also creating a discount frenzy between African and Gulf oil producers to Asian buyers.
Asia has become a hotspot for a price war between African and Gulf oil producers who, hobbled by bulging global supplies and waning demand, are offering steep discounts to defend their market share in the world’s top net crude buying region.
Analyst said the move by Saudi Arabia reflects the kingdom’s deepening defense of market share, while it trimmed prices for U.S. refiners and increasing rates for Asia.
Oil industry operators also said that the cuts to Europe may be a result of trying to price out West African barrels from Europe.
West African crude oil exports to Asia are set to fall to around 1.69 million barrels per day (bpd) in January, from 1.93 million bpd planned for December, a Reuters survey showed on Monday.
The level of West African exports to Asia for January is set to be the lowest since August and compares to a level of 1.86 million for the same month last year.
State oil firm, Saudi Aramco, cut the official selling price (OSP) for its Arab Light crude to Northwest Europe by $1.50 for February, putting it at a discount of $4.65 a barrel to the Brent Weighted Average (BWAVE), the lowest since 2009.
“The moves are reinforcing that the Saudis just don’t intend to do anything to rebalance (price) levels. They want to maintain market share,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.
Aramco raised its February price for its Arab Light grade for customers for Asia – the largest of its three major regional market – by 60 cents a barrel versus January to a discount of $1.40 a barrel to the Oman/Dubai average.
The Arab Light OSP to the United States, the fifth consecutive monthly cut, was set at a premium of 30 cents a barrel to the Argus Sour Crude Index (ASCI) for February, down 60 cents from the previous month.
The Kingdom’s move to cut its OSPs has been perceived by many traders as a signal of its decision to abandon efforts to shore up falling crude oil prices and, instead, focus on maintaining its share of key markets. Some analysts, however, have said they see the changes in monthly differentials as a simple reflection of deteriorating market conditions.
The competition between west Africa and Middle East is a welcome development for Asian buyers. If oil stays near $60 per barrel, import costs for the world’s No.2 oil consumer, China, would drop to under $125 billion a year, versus $222 billion in 2013 when crude averaged $110.
But for producers it means more competition, and African sellers like Nigeria and Angola, faced with precarious finances due to plummeting oil prices, are struggling to make inroads into Asia, a Middle Eastern stronghold.
“There is competition between West African and Middle East suppliers for the Asian markets, but the Middle East suppliers have the cost advantage,” said Philip Andrews-Speed, head of Energy Security Division at the National University of Singapore.
Low operating costs in Saudi Arabia, Kuwait and the Emirates, already allow these countries to offer hefty discounts.
Now, a more than 50 percent jump in freight rates between West Africa and China since September is adding to the relative advantage of Middle Eastern grades, which require shorter shipping distances to Asia.This has been a big setback for West African producers.