By Jeph Ajobaju, Chief Copy Editor
Supply disruptions in the North Sea will help Nigeria export about 905,000 barrels per day (bpd) of crude oil to Europe this month, the most since November 2018 when it notched a five-year high of about 1 million bpd.
Norwegian and United Kingdom offshore fields in the North Sea normally provide a steady supply of lighter crude to refineries feeding Northern Europe’s major economies and are more competitive than Nigerian grades due to their proximity.
However, Reuters quotes Refinitiv Eikon data and traders as saying that outages at North Sea oilfields will help put competing Nigerian oil on pace to arrive in Europe at the highest levels in seven months in June.
OPEC quota
The Organisation of Petroleum Countries (OPEC) reduced output by 300,000 bpd in February to raise prices.
But Nigeria – the world’s sixth largest exporter – exceeded its target of 1.74 million bpd. It currently produces 1.78 million bpd, partly due to pressure to fund its budget which depends 95 per cent on oil receipts.
Output from Egina oilfield has reached 150,000 bpd, and is expected to boost total production estimated at 2.2 million bpd in 2019.
With production cuts agreed by OPEC, Nigeria’s output is around 1.74 million bpd, excluding extremely light oil known as condensates.
Nigeria produces condensates of 350,000 bpd because the type of light oil condensate Egina field produces is excluded from OPEC cuts which only apply to crude.
Increased demand in Europe means more money for Nigeria’s treasury.
Meeting European demand
Planned maintenance on Norway’s Ekofisk oilfields this month slashed exports to just one cargo from the usual 10-15. Flotta, another of the 12 North Sea fields, closed for repairs over two weeks in late May, according to Reuters.
“Nigerian grades are normally middle-distillate-rich and with Ekofisk having undergone maintenance, Nigeria is meeting European demand for this type of crude,” said Ehsan Ul-Haq, lead analyst for oil research and forecasts at Refinitiv.
Supply of the five North Sea crude grades that underpin the dated Brent benchmark is set to fall to around 720,000 bpd in June, from 948,000 bpd the month before.
The contamination of a pipeline carrying Russian Urals crude in April interrupted flows to Central and Eastern Europe for a month and left stocks in need of replenishment.
Higher volumes to Europe have provided an unexpected boon, with Nigerian exports to the United States on the wane for a decade due to increased U.S. shale oil production, and demand relatively steady in Nigeria’s key markets, India and Indonesia.
“(Europe) always tends to act as the clearing house at lower value than the East,” one trader selling Nigerian crude said.
Other factors selling Nigeria’s oil
Though European gasoline margins have been middling and especially poor among Southern European refiners, several factors may mesh in coming months to support Nigerian differentials, which stand near multi-year highs.
Traders said the possibility of a permanent shutdown to the fire-stricken Philadelphia Energy Solutions refinery in the city, though it was a consistent importer of Nigerian crude, would increase demand for gasoline refined in Europe.
Egina, heavy sweet crude from a new offshore field, has proved consistently popular among refiners in northwest Europe.
“Exports of the grade primarily go to Europe, specifically the Netherlands and France, which combined took around 155,000 bpd in May, or 83 per cent of the grade’s exports,” said Mercedes McKay, analyst at energy consultancy FGE.
Heavier grades could also benefit, with comparable Venezuelan and Iranian crude pushed off the market by U.S. sanctions and ahead of a January switch to less-polluting marine fuels under new International Maritime Organisation (IMO) standards.
“(Even if) margins are bad, European refiners think they can profit from distillate demand for the 2020 bunker fuel change,” Refinitiv’s Ul-Haq said.
