Oredola Adeola with agency reports
…threatens FG’s revenue targets
The Nigerian Government’s oil revenue is now visibly threatened by an unexpected drop in demand for Nigeria’s light sweet crude and Angola’s crude in the Asia market. This has consequently, led to a large overhang of April and May cargoes.
This latest development have also increased concerns about budget deficits in Nigeria’s 2022 financial year.
EnergyDay observed that the country’s budget of Usd38bn for 2022 is predicated on an oil price benchmark of Usd62/b but in anticipation to attain 1.88million b/d. This production target has remained elusive giving rise to fears that the country could again slip into a budget deficit.
The upsurge in crude price over the last few months has covered though, for the stagnant production level of about 1.4 million b/d, but further drop of demand for the country’s crude is clearly a major threat.
It is unlikely the European market would be available to take the glut of the unplaced Nigerian crude due to weak demand from Asia, as the traders told Reuters that most European buyers are said to be unwilling to take African grades at the moment.
This development is majorly caused by the decision of the United State to release a flood of oil, totaling 1 million bpd for six months starting from May 1, or about 180 million barrels, in six months from its Strategic Petroleum Reserves(SPR) to enforce the anticipated loss of Russian exports.
Other International Energy Agency(IEA) members have also agreed to release oil to cover for the anticipated rejection of 3 million barrels per day of Russian crude and oil products starting in April.
It was gathered that Russia exports between 4 and 5 million bpd, making it the second-largest crude exporter behind Saudi Arabia.
This has led to crash of cash prices for key crude oil grades produced in the Middle East, Europe and the United States from record premiums to futures benchmarks.
Reuters reported that West African crude offers slipped again this week as Asian buyers had largely filled their requirements for the trading cycle and European buyers held off as supply overhangs lingered, traders said.
The traders told Reuters that crude oil supplies from Nigeria as Africa number one exporter, were piling up, with an overhang of April and May-loading crude reaching at least 40 cargoes.
It was also reported that crude oil for April loading from Angola, Africa’s second largest oil exporter has yet to sell out along with at least 10 cargoes for May, the slowest sales in years, due to poor demand from top buyer China.
China recently extended a lockdown in Shanghai due to corona-virus infections.
The traders also revealed that the Nigerian crude grades demand is also hit by India’s switch to cheap Russian Urals crude, reducing its demand for supplies from the Middle East and Africa, they said.
A Singapore-based trader also told Reuters that “It’s unclear if we are really facing tight supplies because Russian barrels are still flowing, adding that the United States may export more oil to Asia and Europe after the SPR release.