Article summary
- The blending of WTI and Brazilian grades to make a more affordable Nigerian substitute grade has been occurring for some weeks, leading to a material decline in demand for the country’s crude.
- The scenario is undercutting the Nigerian crude grades in Europe and pushing down buying interest for Nigerian cargoes.
- This presents a new set of challenges to the country which has been underproducing oil in recent times due to increased crude oil theft and other forms of sabotage.
Two crude types are currently being blended to produce a cheaper Nigerian crude lookalike and this has reduced demand for Nigerian crude.
This is according to a recent report from S&P Global Commodity Insights. According to S&P, WTI Midland, the light sweet US grade, is being blended with heavy Brazilian grades to produce a cheaper Nigerian lookalike, which is undercutting the Nigerian crude grades in Europe and pushing down buying interest for Nigerian cargoes.
The new challenge Nigeria will face
S&P says that its sources hint that the blending of WTI and Brazilian grades to make a more affordable Nigerian substitute grade has been occurring for some weeks, leading to a material decline in demand for the country’s crude. So, Nigerian grades like Bonga, Forcados, and Escravos are struggling.
This presents a new set of challenges to the country which has been underproducing oil in recent times due to increased crude oil theft and other forms of sabotage. In December 2022, the Nigerian National Petroleum Company Limited (NNPCL) said that the country lost up to 700,000 barrels per day to crude oil theft.
Meanwhile, in April 2023, the Nigerian Extractives Industries Transparency Initiative (NEITI) said that between 2009 and 2020 (a 12-year period), Nigeria lost 619.7 million barrels of crude oil valued at $46.16 billion or N16.25 trillion. This volume of crude oil losses represents a loss of more than 140 thousand barrels per day.
What you should know
So, the threat that the WTI Midland and heavy Brazilian grade mix present is an additional threat to Nigeria’s crude oil production revenues. According to S&P, traders have struggled to offload cargoes of Nigerian crude in recent months.
This is commonplace as buyers in India and China moved to buy more heavily discounted Urals crude and even European refiners have begun looking elsewhere for crude oil. A part of the S&P report stated:
- “In turn, this has pushed Bonny Light, Nigeria’s flagship crude grade to a 50%/b discount to Dated Brent on June 6. The discount has narrowed slightly over the last few days but has averaged a discount to Dated Brent over April, May and so far in June.
- “Blending of the grades at European refineries produces crude with the low sulfur quality of Nigerian grades, but with enough heavy Brazilian content to ensure not too much naphtha is produced, sources said.
- “This is the latest blow to Nigeria’s embattled oil sector, with production falling in recent years due to security, underinvestment, and technical issues at aging wells. African crudes popular with refiners in Asia have been undercut in recent months by cheap Russian barrels, due to the price cap imposed on Russian oil by Western countries following the war in Ukraine. Indian and Chinese refineries have become hooked on Russia’s Urals grade, according to data from S&P Global Commodities at Sea.”