Something ironic happened on the way to OPEC’s alleged production cut: the world finds itself drowning in excess oil.
We touched on this first last week when we observed that according to the latest OPEC monthly production numbers, OPEC had produced a record 33.4mmbpd, with some expectations that by the time the November Vinna OPEC summit takes place, there will be another million barrels in output. And while the market, or at least the marginal price setting algos have been reluctant to admit the excess supply reality and adjust prices accordingly, OPEC member Nigeria has found the hard way that when there is a glut, the only way to gain market share is to underprice the competition.
Nigeria National Petroleum Corporation lowered by at least $1 a barrel its official selling prices (OSPs) for 20 out of 26 oil grades monitored by Bloomberg, according to pricing lists. Qua Iboe, Nigeria’s largest export crude under normal circumstances, was reduced by the most since 2014.
NNPC cut the selling price of Qua Iboe for November to a 17 cent premium to the benchmark Dated Brent, according to the price list, from $1.07. It reduced the price of Bonny Light to a 7 cent premium and Forcados to a 41 cent discount to Dated Brent.
The reason for the dramatic price cuts according to Mele Kyari, group general manager for the oil-marketing division at NNPC, the state oil company, is a “huge cargo overhang”, the same overhang we cautioned back in March as much of the land-based storage has moved to sea, which is preventing the country from regaining market share.
Over the past year, Nigeria has been hit with a double whammy in its attempt to restore its once vibrant oil exporting industry.
On one hand, the country is grappling with prices that are less than half what they were in July 2014, squeezing the country’s spending programs and leading to an unprecedented currency devaluation. However, what makes the African nation’s situation more acute is a militant campaign that resulted in export flows falling to the lowest in at least 9 years earlier this year. However, now that the outside funding for the infamous Niger Delta Avengers appears to have been cut off, shipments are gradually resuming, and lower prices are a sign Nigeria is seeking to become more competitive in an already oversupplied global market.
“It is a bearish signal for the light, sweet market,” Eshan Ul-Haq, principal at KBC Process Technology told Bloomberg, referencing the types of crude Nigeria mostly pumps. “In order to capture a higher share of the market, OSPs have to come down.”
And while so far only the light, sweet market is impacted as Nigeria seeks to recover market share lost to competitors who eagerly took advantage of it being offline for month, as OPEC production continues to rise, the squeeze will hit other grades, forcing upstart producers seeking to reclaim market share – most notably Iran – to follow in Nigeria’s footsteps and cut prices.
The post Nigeria Slashes Oil Prices, Admits There Is A “Huge” Cargo Glut appeared first on crude-oil.top.