Nigeria seems to be carving out front in the North Sea market covering the Norwegian sea by offering its crude at massive discounts in a bid to undercut its rivals and raise fallen revenues.
Exports of Qua Iboe and Bonny Light, two of Nigeria’s biggest crude grades will be sold in April for discounts of more than $3 to benchmark and Brent which was lower than what it sold its soil during 2008 financial crises, according to Bloomberg report.
Crude oil prices have been a moving target in the last two weeks falling to an 18 year low after prices fell below $30 a barrel last week.
Brent traded at $26 for most of Monday indicating that Nigeria could be offering its crude at $25.2 at a discount of 3 percent on the Brent benchmark.
Africa’s biggest oil producer suffering a cash crunch which has seen it begin to deplete its reserves, review downwards its budget benchmark and slash recurrent and capital budget.
However, some oil traders told Bloomberg though many refiners prefer to premium for Nigeria’s superior crude grades but with countries locking down people and airports shutting down, demand for crude has fallen by about 10 and 20 million barrels according to traders.
Nigeria is offering discounts in response to Saudi Arabia’s own discounts of up $7 a barrel against the benchmark price of oil. Saudi Arabia is effectively pricing oil $13 a barrel but its crude grades is low quality with higher amounts of Sulphur.
Apart from depressed demand on account of the Coronavirus pandemic, the Saudi-Russia oil price war has increased a glut in the oil market and bloodied the fight for higher market share among competing producers whose rebates may serve to worsen a dire situation.
Oil companies are already feeling the heat as many have cut expenses and are postponing investment decisions. Share prices have plummeted and operations in some quarters are being stymied as these companies try to comply with best practices in social distancing to help stop the spread.
Analysts say the Federal Government should be ramping efforts to reduce the cost of production of crude oil in Nigeria.
“The government should be assisting to reduce the cost of producing a barrel of crude oil and also generally incentivizing producing in Nigeria,” says Ayodele Oni, energy lawyer, and partner at Bloomfield law firm.
Nigeria produces a barrel of oil for between $15 and $17 in onshore fields but costs could rise up to $30 a barrel in offshore fields due to the high cost of acquiring FPSOs.