November 23, 2022

WWW.ENERGYINTEL.COM

West Africa Discounts Heavily in Buyer's Market

  • Soaring freight costs have disadvantaged West African crude in long- and medium-haul markets Asia and Europe.
  • Angola is caught between Chinese pandemic policies and ruinous arbitrage economics.
  • Lobbying delays Nigeria price setting as term customers seek to clear December overhang cargoes.

Sellers of December-loading West African crude face a perfect storm of weak demand, strong competition and a closed arbitrage window to Asia, forcing aggressive discounts across most crude grades. As of Nov. 22 buyers said further discounting would be necessary to make West Africa more competitive in what is undeniably a buyer's market.

As of Nov. 22, Nigeria had more than half the December program to sell as Nigerian National Petroleum Corp. (NNPC) was unveiling the January program, not to mention a small overhang of belatedly injected November cargoes. The key question is whether NNPC's cut in official selling prices (OSPs) is deep enough for term lifters to attract buyers.

Angola still had a handful of December cargoes left, alongside a few cargoes reoffered by term buyers.

Estimated West African Exports, October 2022
('000 b/d)Vol.
Angola927
Cameroon84
Chad3,800
Congo (Brazzaville)209
Congo (Kinshasa)29
Cote d'Ivoire39
Equatorial Guinea85
Ghana153
Gabon199
Nigeria*1,149

Bearish Atmosphere

Global oil prices have taken a bearish turn in recent weeks thanks to a spike in Covid-19 cases in China, signs of economic recession, inflation, high interest rates and a strong dollar. In other signs of softness, the price curve has eased for both Brent — the benchmark to which West African grades are hitched — and West Texas Intermediate (WTI), with the latter dipping into contango on Nov. 23, a sign of a market fully supplied in the front-month.

Disappointment that Chinese demand, which has traditionally taken around 60% to 70% of Angola’s crude, has not materialized, is palpable with reverberations around Angola’s other markets. Last month’s uptick in China’s crude runs and the government’s attempt at a more “targeted and precise” approach to controlling Covid-19 outbreaks had spurred expectations of a demand revival.

However, fresh outbreaks in Beijing, Guizhou and elsewhere, as well as general confusion over the implications, have stalled an expected revival of Angolan flows. This has encouraged Europeans — who buy early when necessary ahead of China — to sit back and wait until differentials soften. "In Angola, every single [grade] is down ... mainly Dalia, which is 100% China-oriented,” said one European refiner.

Flagship Cabinda’s premium has reportedly fallen to its lowest levels since January, with Chevron offering a late-December-loading cargo in the Platts window on Monday at dated Brent plus 70¢ per barrel. Price reporting firms had assessed Cabinda at dated Brent plus $1.10/bbl at the end of last week compared with dated plus $2.90/bbl at the end of October. Hungo’s discount to dated Brent has almost quadrupled to dated minus $3.05/bbl from dated minus 80¢/bbl.

Trade Trends

The export trend continues the pattern of recent months. Angola’s October loadings to China, which are traded in August/September, tallied around 492,000 barrels per day compared with 832,000 b/d a year ago. Europe, which exploited the absence of China while looking for alternates to Russian crude, loaded a hefty 250,000 b/d in October — eight times what it loaded in October 2021.

West African Exports to Asia, October 2022
('000 b/d)NigeriaAngolaOtherTotal
China10492304806
India969291279
Taiwan0000
Indonesia923260184
Japan0000
Other*3132063
Total2296484551,332

Compounding the problem are persistent unfavorable economics, with the arbitrage to Asia still closed. The Brent Dubai exchange of futures for swaps remains above $7, which makes competing Dubai and WTI more competitive. Freight costs have continued to rise with a very large crude carrier from West Africa to Asia “at the thick end of $6/bbl,” according to one Chinese trader, from around $5/bbl a month ago.

As the embargo on Russian crude oil imports looms ahead of Dec. 5, appetite for light, sweet Nigerian fare remains weak. Refiners in Europe, its main market, need medium, sour grades to replace Urals and to cash in on strong diesel margins. “There’s an element of oversupply” as well, said one trader, with Dubai-indexed crudes now jostling with US and Brazilian fare for buyer’s attention, alongside short-haul Mediterranean grades like Libyan Es Sider, as well as local North Sea barrels.

The differentials on Nigerian fare have continued softening in recent weeks just as production has started to increase. The premium on flagship Qua Iboe has lost 60¢/bbl over the month to hit dated Brent plus $1.15/bbl, price reporting firms estimate. The premium for Escravos has more than halved over the same period to dated Brent plus $1.40/bbl from dated plus $4/bbl.

Term customers lobbied hard for NNPC — which sets prices retrospectively each month — to cut OSPs hoping to clear the December overhang. NNPC normally sets the OSPs just before unveiling the following month's program. The extensive lobbying and indecision delayed NNPC's announcement until several days after it started issuing January programs. On Nov. 22 NNPC's new OSPs saw the premium of Escravos slashed by $1.34/bbl to dated Brent plus $2.67/bbl, and that on Forcados cut to dated plus $1.73/bbl from plus $2.51/bbl. The premium on Qua Iboe was slashed by 44% to dated Brent plus $1.62/bbl from dated plus $2.90/bbl.

Estimated Nigerian Loadings, October 2022
DateVol. ('000 bbl)SellerBuyerDest.
Abo 38.8° API, 0.14%S, TAN=0.98
13-14600EniShellRotterdam
Agbami 48.28° API, 0.04%S, TAN=0.05
3-4975NNPC-GlencoreBP
10-11975ChevronTotal
IOCIndia
22-23975ChevronGlencore
AmpolAustralia
30-31975ChevronPetrobrasBrazil
Akpo 45.8o API, 0.07%S
11-121,000SapetroShell
IOCIndia
24-251,000CNOOCVitol
IOCIndia
Amenam 39.4o API,0.1%S, TAN=0.30
3-4950NNPC-BonoP66USEC
<11-12950Total‡ France
22-23950NNPC-MocohCepsa
TotalEurope
Antan 28° API, 0.3%S, TAN=0.34
23-24350MonipuloShellRotterdam
Anyala Madu
13-14650First E&P/Vitol Trieste
29-30650NNPC-ShellP66USEC
Bonga 29.39° API, 0.25%S, TAN=0.46
2-3950ShellSIRC'ivoire
14-15950EniMercuriaRotterdam
Bonny Light 35.09° API, 0.15%S, TAN=0.25
No info
Brass River 40.1° API, 0.18%S, TAN=0.13
16-22750Oando or NNPCIrvingCanada
§
EA 35° API, 0.09%S, TAN=0.13
12-13650ShellPreemSweden
24-25300Shell† China
Egina 27.3° API, 0.165%S, TAN=0.24
7-8950NNPC-SaharaSIRC'Ivoire
14-15950SapetroCNOOC
Vitol
PertaminaIndonesia
>27-28950CNOOCVitol
PetrogalPortugal
Erha 35.4° API, 0.18%S, TAN=0.13
8-9950NNPC-TotalSARSenegal
22-23950ShellstorageRotterdam
Escravos 32.4⁰ API, 0.17%S, TAN=0.56
4-5950NNPC-TotalRepsolPeru
12-13950ChevronRepsolSpain
18-19950NNPC MRSTotalRotterdam
25-26950NNPC-SaharaPertaminaIndonesa
30-31950ChevronRepsolTarragona
Forcados 31.5⁰ API, 0.22%S, TAN=0.33
21-221,084Shell/Elcrest/ExcelSIRAbidjan
22-23950NPDC-MercjuriaCepsaGibraltar
27-28950Shoreline-Vitol Switzerland
30-31950ShellPKNGdansk
Jones Creek
1-30950NNPC-LevenePetroineosEurope
Okoro
No info
Okwuibome 35.39° API, 0.02
15-20950Sterling VitolPertaminaIndonesia
Pennington
No info
Qua Iboe 37.6° API, 0.11%S,TAN=0.33
1-3950NNPCTotal
Monroe EnergyUSEC
5-8950ExxonPetroineosFinnart
17-20950NNPC-ATCCepsaSpain
24-25950ExxonSasolS. Africa
Usan 29º API, 0.27% S, TAN=1.53
14-15950Exxon Rotterdam
Yoho 40.5° API, 0.06%S, TAN=0.23
>29-30950Exxon USEC

Estimated Angolan Loadings, October 2022
DateVol. ('000 bbl)SellerBuyerDest.
Cabinda 32.2° API, 0.15%S, TAN=0.11
6-7950ChevronUnipecChina
19-20950Total‡ France
Clov 33.17° API, 0.25%S, TAN=0.54
7-81,000Total‡ France
16-171,000Exxon‡ Southampton
25-261,000EquinorTotalFrance
Dalia 23.4⁰ API, 0.49%S, TAN=1.54
5-6950ExxonUnipecChina
13-14950SonangolUnipec (t)China
22-23950SonangolSinochem (t)China
30-31950TotalCNOOCChina
Gimboa 25.3° API, 0.56%S, TAN=0.65
No cargoes
Gindungo 32° API, 0.58% S, TAN=0.54
27-28950TotalSinochemChina
Girassol 30.21° API, 0.34%S, TAN=0.39
4-51,000EquinorUnipecChina
20-211,000SonangolMubadalaBrazil
Hungo 29.4° API, 0.59%S, TAN=0.46
13-14950Sonangol (t)IOC India
Kissanje 30.3° API, 0.36%S, TAN=0.51
16-17950BP†Unipec
SK EnergyUlsan
Mondo 27.5° API, 0.438%S, TAN=0.922
22-23950SonangolSinochem (t)China
Mostarda 28° API, 1.12%S, TAN=0.53
1-2950TotalUnipecChina
9-10950Exxon‡ Med/Europe
17-18950SonangolSinochem (t)China
24-25950TotalExxonMed/Europe
Nemba 37° API, 0.276%S, TAN=0.24
12-13950ChevronIOCIndia
21-22950SonangolSinochem (t)China
Olombendo 35.2° API, 0.12%S, TAN=0.11
3-4950SSIUnipecChina
22-23950SonangolPertaminaIndonesia
Palanca 37.2° API, 0.18%S TAN=0.03
No cargoes
Pazflor 24.7° API, 0.4%S,TAN=1.63
1-2950SonangolSinochem (t)China
10-11950Exxon‡ Rotterdam
20-21950TotalIOCIndia
Plutonio 33.2° API, 0.37%S, TAN=0.12
No info
Sangos 31⁰ API, 0.6%S, TAN=0.29
19-20950SonangolUnipec (t)China
Saturno 27.6° API, 0.8%S, TAN=0.53
14-15950SonangolSinochem (t)China
26-27950BPUnipecChina
Saxi-Batuque 34.6° API, 0.25%S, TAN=0.59
24-25950SonangolExxonItaly


Estimated Other West African Loadings, October 2022
DateVol. ('000 bbl)SellerBuyerDest.
Cameroon
Kole 32.06° API, 0.33%S, TAN=0.5
1-5950Addax-UnipecShell
IOC†India
23-24700SNHSarrochEurope
Lokele
3-5600SNHShell†Wilhelmshaven
Chad
Doba 25.85° API, 0.09%S, TAN=2.23
2950CNPC/ClivedenSenning
Shell†Wilhelmshaven
13950SHT-GlencoreTotal‡Rotterdam
21950CNPC/ClivedenSenning
ExxonEurope
28950ExxonShellWilhelmshaven
Congo (Brazzaville)
Djeno 27.6° API, 0.341%S, TAN=0.69
5-6920EniMubadalaBrazil
10-11920TotalUnipecChina
15-16920SNPCMercuria
UnipecChina
19-20920SNPC-traderUnipecChina
24-25920EniIOCIndia
28-29920SNPC-traderPTT
UnipecChina
Nkossa 39.92° API, 0.06%S, TAN=0.05
17-18950TotalBPCLIndia
Congo (Kinshasa)
Coco
13-15900PerencoBP
PertaminaIndonesia
Cote d'Ivoire
Baobab
14-15950CNRBP
CNOOCChina
Espoir
9-10260CNRVitol
Paz OilIsrael
Equatorial Guinea
Aseng
23-24650NobleSarasEurope
New Zafiro 30.2° API, 0.25%S, TAN=0.74
2-31,000GEPetrolRepsolSpain
Ceiba
15-161,000KTEGIBP
UnipecChina
Gabon
Rabi Light 33.2° API, 0.14%S, TAN=0.08
6-7950PerencoGlencore
PertaminaIndonesia
22-23950PerencoUnipecChina
25-26450PerencoShellEurope
Rabi Blend 34.10° API, 0.06%S
19-20950AssalaShell
UnipecChina
Mandji
6-7450PerencoNo info
14-15450PerencoNo info
22-23450TotalNo info
29-30450TotalNo info
Dussafu
9-11650PanoroTrafigura
ORLIsrael
Etame 35.21⁰ API, 0.06%S, TAN=0.2
2-4430VaalcoGlencore
MubadalaBrazil
Lucina
No info
Oguendjo 34⁰ API, 0.67%S, TAN=0.6
^
Ghana
Jubilee 36.75° API, 0.29%S, TAN=0.05
5-6950TullowP66USEC
16-17950KosmosGlencore
UnipecChina
27-28950TullowP66USEC
Sankofa 28° API, 030%S, TAN=0.08
4-5950GNPC-LitascoValeroUSEC
Ten 33.0° API, 0.43% S, TAN=0.05
10-11950TullowUnipecChina

Christina Katsouris, London