Nigeria Faces Revenue Risk with Decrease in Crude Oil Demand

Conventional buyers of Nigerian crude are going for cheaper alternatives, driving the emergence of France as the country’s leading customer.
Top crude grades of Africa’s biggest oil producer, Bonny Light, Forcados, and Brass, have a famed for being light in sulfur, a quality that has made them the darling of refineries in Europe and Asia.
But the country’s conventional huge buyers from India to China are expanding their purchase of US crude, Russian crude, and Latin American oil as they cite the Nigerian grades as moderately expensive, with dealers hesitant to offload the country’s cargoes.
The development poses a risk to Nigeria, which depends on oil exports for more than half of its total foreign exchange earnings.
Data gathered by journalists showed that India purchased N1.3 trillion of Nigeria’s crude oil within the first quarter of 2024, a decrease from a normal of N2 trillion purchased between 2018 and 2021.
“Buyers are increasingly turning to cheaper alternatives, raising concerns for the country’s revenue stream,” Aisha Mohammed, a senior energy analyst at the Lagos-based Centre for Development Studies said.
The latest tanker-tracking data monitored by journalists showed that India is buying more American crude oil as Russian energy flows dwindle amid sanctions.

India’s state-owned oil refiners Bharat Petroleum, Indian Oil, and the country’s driving private refiner Reliance Industries, snapped up about seven million barrels of April-loading US crude oil, the biggest monthly influx since last May, traders who inquired not to be identified told Keper, a global trade intelligence firm.
Russian crude flows to India surged after the attack on Ukraine and the OPEC+ producer is still the biggest provider to the South Asian country, but tighter US sanctions have stranded cargoes and discounts have narrowed. India has moreover ramped up purchases recently from Saudi Arabia.
“Given the issues faced with importing Sokol in Russia, it’s no surprise that Indian refineries are turning toward US WTI Midland as their light-sweet alternative,” said Dylan Sim, an analyst at industry consultant FGE.
India’s imports of Russian crude in February were at around 40 million barrels — or nearly 30 percent of the country’s overall oil and condensate purchases, according to data compiled by Bloomberg. In 2023, Russia’s share of the Indian market accounted for 39 percent on average.
“With progressing fluctuations and a focus on cost-effectiveness, buyers are prioritizing oil sources with lower cost tags. This puts Nigerian oil, known for its slightly higher sulfur substance, at a disadvantage,” a source in international trade business told journalists.
NBS data showed France overwhelmed the Netherlands (a major European refining center), as the biggest buyer of Nigerian crude oil, obtaining products worth N2.5 trillion within the first quarter of 2024, whereas Netherlands’ imports from Africa’s top producer were esteemed at N1.5 trillion.

Spain and India occupied second and fourth positions as they purchased Nigerian crude worth N1.72 trillion and N1.3 trillion separately as of March 2024.
Reports’s findings appeared West African barrels are typically put on the market about six weeks before their loading month, underlining the sluggish pace of deals for Nigeria’s May supplies.
Almost 10 cargoes of the country’s crude for May loading were still accessible for purchase, according to the median estimate of three traders practicing in the trade.
Costs of rival suppliers such as Azeri Light and West Texas Intermediate have moreover weakened for rival suppliers to Europe’s plants,
“We’ve got much weaker margins so Nigeria’s crude request is taking a hit,” said James Davis, director of short-term oil market research at FGE.
Nigeria’s lag was moreover driven by sellers looking for premiums over the Dated Brent benchmark that proved too high for refiners in Europe, agreeing to Energy Aspects Ltd.
May cargoes were at a premium that didn’t work well into Europe, but lower offers have seen volumes move,” said Christopher Haines, EA global crude analyst. “Stronger forward diesel estimating is also helping.”
A few Nigerian grades were being estimated more competitively, including Qua Iboe to Asia and Bonny Light to the Mediterranean or East, with the overhang slowly diminishing, Sparta Commodities said in a note earlier this week.
“Reduced request could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government,” Charles Ogbeide, an energy analyst with a Lagos-based investment bank said.