Viewpoint: Global politics to shape WAF crude markets

Decisions taken along the Washington-Vienna-Beijing axis will have significant effects on demand for west African crude grades in 2021, barring future escalations of the Covid-19 pandemic.

US president-elect Joe Biden's new course on trade, diplomacy and the environment will likely shape most of the crude trade between west Africa, Europe and China. Biden's pledge to end trade wars and to revive diplomacy could harmonise US-China relations and lead to flow of US crude to China stabilising at elevated levels. This would inevitably dent China's appetite for west Africa's less-economic alternative grades.

But Biden's energy agenda, which includes reducing US dependence on hydrocarbon-based fuels, might hinder development in shale oil production. This could open doors for west African crudes in Asia-Pacific and Europe. ExxonMobil and Chevron have forecast very marginal increases in short-term output from their Permian shale assets, even before any policy changes, because of an oversupplied market. The US EIA estimates US crude production next year at 11.1mn b/d, below this year's forecast of 11.34mn b/d and well under the record-high 12.9mn b/d of November 2019.

Any resulting fall in US crude exports could support Chinese interest in Angolan, Congolese and Ghanaian crudes and reopen doors for Nigerian grades into Europe.

Demand in Europe has been heavily affected by Covid-19 restrictions this year, but the progressive release of vaccines could lead to a revival in buying interest in time for the summer driving season, which will probably mean refiners targeting short-haul shipments of Nigerian distillate-rich crude grades.

This could coincide with higher Opec+ output quotas for west African countries, which would enable more exports given the low amount of regional refining capacity. Opec+ will increase crude output by a collective 500,000 b/d in January, and will make decisions about any future increases at monthly meetings. Nigeria's quota will be 1.516mn b/d in January, slightly above the 1.495mn b/d for the July-December period but more than 100,000 b/d above the 1.412mn b/d for May and June. Similar increases will apply to quotas for Angola, at 1.267mn b/d, Congo (Brazzaville) at 269,000 b/d, Gabon at 155,000 b/d and Equatorial Guinea at 105,000 b/d.

Administrations across west Africa appear confident about a stronger demand outlook. Nigeria has yet to approve a final 2021 budget, but President Muhammadu Buhari's budget presentation speech posited a benchmark oil price of $40/bl, much above the $28/bl in the 2020 budget revision. The Angolan parliament has approved a 2021 budget based on $39/bl oil, above the $33/bl forecast in its 2020 revised budget. Gabon and Congo (Brazzaville) appear more optimistic, with 2021 oil prices at $41/bl and $45/bl, up from $30/bl and $25/bl set in their respective revised 2020 budgets.

Should economic activity recover in Europe, values of west African grades could stabilise at firm premiums to North Sea Dated. Demand from major Asia-Pacific buyers appears solid and new markets are opening in unusual locations. India's main refiner, state-run IOC, aggressively increased its intake of west African crude in November and is now running all its facilities at 100pc of capacity. In China, private-sector Rongsheng may provide a further outlet for west African crude at its newly-expanded 800,000 b/d ZPC refinery in Zhejiang province. Shell has shipped at least 3mn bl of Nigerian and Angolan crude grades to the Philippines this year, the first such shipments since at least 2017.

Demand for west African crude is rising in the US Gulf and the Caribbean. A rare shipment of Nigerian Qua Iboe reached Corpus Christi, Texas, in late December, on behalf of trading firm Mercuria. The tanker was probably destined for the Pin Oak Terminals' oil dock 14, which received its first crude shipment in April. The terminal company, Pin Oak Corpus Christi, is a joint venture between Dauphine Midstream and Mercuria. A November-loading cargo of Chadian heavy sweet Doba reached the recently-reopened 200,000 b/d St Croix refinery in the US Virgin Islands in mid-December. And a December cargo of Nigerian light sweet Yoho was booked for the logistic hub on the island of St Eustatius.

By Nicola De Sanctis