Low Chinese demand cuts Nigerian flows to India

Subdued Chinese crude imports are having an indirect effect on the amount of Nigerian crude flowing to the Indian market.

India's largest refiner, IOC, recently closed a tender for crude loading in late August or early September, buying a slim 2mn bl of west African crude out of an overall purchase of 8mn bl. Of the 2mn bl, only one cargo was Nigerian — a shipment of very light sweet Agbami — with the other being Kole Marine from Cameroon. This is a radical shift from the refiner's usual buying patterns. Nigerian medium and light sweet grades have traditionally been IOC's preferred options in its weekly or biweekly tenders — mainly Agbami, Bonny Light, Forcados and Qua Iboe. Nigerian grades accounted for a third of the roughly 740,000 b/d of sweet crude that was exported to India in the second quarter of this year, according to figures compiled by oil analytics firm Vortexa.

A narrowing arbitrage for eastbound shipments from the Atlantic basin has weighed on the refiner's appetite for west African grades. Signs that the firm was varying its crude slate were already apparent earlier this month, when the refiner closed a tender for cargoes loading on 22-31 August and 13-22 September, opting for 3mn bl of crude from the Mideast Gulf priced against regional benchmark Dubai, and only two cargoes of Nigerian crude. By contrast, the firm bought 5mn bl of Nigerian crude in a tender that closed in late June.

But the results of the latest tender suggest a much greater degree of diversification. IOC opted for 2mn bl of Norwegian medium sour Johan Sverdrup, 1mn bl of Brazilian medium sweet Sapinhoa, 1mn bl of UAE light sour Murban and 1mn bl of Basrah Heavy and Basrah Light from Iraq, market participants indicate. "IOC had a good selection of alternatives this time and I think west African sellers were just not quick enough to drop their offers to beat," a market participant says, with another surprised that "west African sellers did not dig deeper".

Little Johan

Johan Sverdrup and Brazilian grades are usually scooped up by Chinese refiners. But sellers are trying to find alternative outlets, as the Chinese independent refining sector's lack of import quotas and widespread crude stockdraws curb the country's import needs.

"Brazil is becoming a competitor to west African crude, and a strong one," a participant says. Other than Sapinhoa, Brazilian medium sweet grades such as Buzios and Tupi can act as alternatives to Nigerian streams. While IOC's purchases of Brazilian crude are not uncommon, the selection of 2mn bl of Johan Sverdrup might embody a recently consolidated interest in the medium sour grade. Before the latest tender, IOC had opted for Johan Sverdrup only once — in April, in a tender for May-loading cargoes — while Indian refiner Reliance has taken roughly 5mn bl of the grade since August 2020, according to Vortexa.

IOC is set to close two further tenders for mostly sweet crude cargoes loading on 4-13 and 7-16 September, on 22 July. If the firm's appetite for west African crude dries up, sellers of Nigerian crude will struggle to find a home for their cargoes, with subdued refinery margins for middle distillates in Europe closing the door for the country's medium sweet grades. This will show up in the official formula prices set by Nigerian state-owned oil firm NNPC on a monthly basis. The company has lowered most of its prices for key grades in August — although less markedly than the market had envisaged — with the exception of light and medium sweet Qua Iboe and Bonny Light, as well as Agbami and Akpo condensate, which were raised marginally. The grades frequently feature in IOC's tender awards.

By Nicola De Sanctis