By Jeph Ajobaju, Chief Copy Editor
Nigeria grew its economy 0.5 per cent in the first quarter of 2021 (Q1 2021) through both higher oil production and prices as activities gradually pivot to pre-pandemic levels after crippling lockdowns.
However, decades of failure to diversify from oil is a weak economic point for Nigeria and it is currently finding it hard to get buyers for even its premium crudes.
The country exited its second recession since 2016 in the fourth quarter, despite a full-year contraction in 2020.
Reuters recalls that the biggest economy in Africa had been grappling with low growth before coronavirus triggered a recession and created large financing gaps, including dollar shortages and inflation.
“The Q1 2021 growth rate was slower than the 1.87 per cent growth rate recorded in Q1 2020 but higher than 0.11 per cent recorded in Q4 2020, indicative of a slow but continuous recovery,” the National Bureau of Statistics (NBS) said in its latest published data.
Nigeria is inoculating its 200 million citizens, but last month directed its regions to stop giving first doses of AstraZeneca vaccines once they use half their current stock, to safeguard supply for a second dose.
Performance by sector
Non-oil sector, which Abuja is trying to make the main growth sector, rose 0.79 per cent in Q1 2021, according to the NBS. Telecoms, crop production, real estate, food manufacturing and construction lifted growth in the quarter.
Per Reuters, crude prices rose above $70 per barrel (pb) on May 19 but fell on May 19 on renewed demand concerns as COVID-19 cases in Asia rose and fears that rising inflation might lead the United States Federal Reserve to raise rates, which could limit growth.
Oil, which accounts for two-thirds of Nigeria’s revenue and 90 per cent of foreign exchange, contracted 2.21 per cent in the first quarter as crude production rose to 1.72 million barrels per day (bpd) from Q4 2020.
With weak growth, few expect the Central Bank of Nigeria (CBN) to alter interest rates next week, Reuters says.
The CBN has pursued an accommodative stance by leaving interest rates on hold. However, dollar shortages have stoked inflation to a more than for-year high, while a shrinking labour market and mounting insecurity pressure households.
“While this points to the likelihood of firmer growth from the second quarter, it still does not allow for a more robust policy response to inflationary pressures,” Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, said.
Nigeria’s oil short of buyers
Right now, Nigeria is finding it hard to sell oil, its main export earner, as major buyer India grapples with large scale coronavirus infections and deaths, compounding an already volatile international market yet to fully recover from the pandemic.
India normally buys large quantities of Nigeria’s premium crudes – Agbami, Akpo, Bonny Light, and Forcados.
But oil firms in Nigeria are downsizing both personnel and machinery, reviewing contracts, and reducing production cost to stay afloat in an increasingly tough terrain where policymakers are shifting from fossil fuel to green energy.
The latest monthly report of the International Energy Agency (IEA) expects Covid-19 to erase almost a decade of oil demand growth in 2020, with countries around the world in varying degrees of shut down to curtail the pandemic.
The IEA expected oil demand in April 2021 to decline by 29 million bpd compared with April 2020.
Nairametrics reports that the scale of the crisis has defied the efforts of OPEC+ and other oil producers, as the idea of production shutdown edges towards reality.
Bonny Light, Nigeria’s headline crude, sells for about $18 per barrel (pb) and Brent crude just rebounded to about $25 pb. Low demand and piling unsold cargoes led to Bonny Light being sold earlier for a discounted price of less than $10 pb.
To mitigate the impact of the shortfalls, oil companies in Nigeria have applied measures which include staff reduction, downward review of contracts with oil service firms, and working at reducing production cost.
However, these measures may not be adequate because global oil demand needs to improve to where crude start selling for between $35 and $40 pb for producers to stay in business.
Bonny Light shipments deferred
Sources told Nairametrics that there are about five shipments of Nigeria’s Bonny Light deferred to June (with two of them already delayed from April).
When cargo is “deferred”, it does not mean that there is some kind of logistical issue, it generally means that there are no buyers.
“The problem with the lack of demand for Nigeria’s oil coincides with the fact that the US has been exporting a lot of light crude oil – which competes with Nigeria’s oil,” a source told Nairametrics who did not want his name published.
“Despite the deals Nigeria has with India, the Indian refineries are simply not buying now because of COVID.”
A lack of demand in India throws up storage concern, so most refined products are headed to South East Asia. A local supply and demand imbalance is brewing in this region.
Other reports confirm that sellers of Nigerian crudes are seeking other buyers in Asia and Europe as the Indian market remains uncertain amid regional lockdowns and sagging domestic consumption.
“Three weeks without [Indian Oil Corp] weighs dramatically on Nigeria. IOC is the biggest Nigerian grades buyer,” a trader said.
“[IOC] skipped the last decade of June [loading window] and now seems to have skipped July 1-10 also,” another source added.
Trading sources said India’s state-owned refiners typically issue tenders for a large proportion of their crude requirements, but with the latest wave of COVID-19 infections in the country still raging, no new tenders have been issued since late April.
This has affected West African crude sellers.
Looking to Indonesia, Taiwan, Thailand
However, there is a possibility that demand can come from Indonesia, Taiwan or Thailand.
According to a report, there is a chance for low-cost Nigerian crude to seem attractive to refiners in Thailand who also need their share of sweet crude for refinery processing.
Demand there could help clear unsold June-loading cargoes, with traders estimating around 25-28 Nigerian cargoes unsold in the month as July trading cycle looms.
Demand from Europe may also increase but WTI Light crude currently dominates the European market and Nigerian oil is priced out of it.
