While OPEC is preparing for yet another meeting to discuss compliance with its notorious production cut deal, two of its members are enjoying something of a windfall thanks to high demand for their crude grades from refiners around the world. In the latest sign that the market does indeed abhor a vacuum, Nigerian and Angolan crude oil is taking the place of the crude of Middle Eastern produces that are cutting their exports as part of the deal.
Nigeria is exempt from the cut, at least for the time being. Angola isn’t exempt, but this fact is not preventing it from raising its exports to certain coveted destinations, including Asia and the U.S., stepping in for Saudi Arabia in Asia and Venezuela in the U.S. as refining margins in both regions run high amid peak demand.
Data from the Energy Information Administration shows that after a dip to 844,000 barrels in March, Angolan crude oil exports to the U.S. jumped to 2.53 million barrels in April and to 3.24 million barrels in May. According to traders who spoke to Reuters, last month Angola loaded almost 8 million barrels for the U.S. and Canada. Nigerian exports to the U.S. have also been strong, although between March and May the monthly shipments have declined from 10.2 million to 8.7 million barrels.
U.S. refinery runs are at two-year highs, and European refiners are also boosting output, with forecasters seeing these runs hit the highest in six years before Shell’s 400,000-bpd Pernis refinery, the biggest on the continent, shut down for two weeks after a fire. This means that the other refineries will spread the load among themselves, analysts believe, unwilling to miss out on the strong margins. Related: Is Russia Poised To Own A Stake In U.S. Oil?
In China, demand for crude from teapots is a major driver of higher Nigerian and Angolan exports as they compete with state-owned refiners. Interestingly, analysts are seeing this support after reports from June, which warned that Chinese demand for crude is likely to slacken during the third quarter as a tenth of refining capacity will be shut down despite the summer driving season where demand reaches its peak, because of a fuel glut on the domestic market.
In addition to strong refining margins that are motivating refiners to boost purchases of crude, Nigeria and Angola also have the specific types of their crudes working for them. Angola’s heavy sour crude is a welcome replacement for Venezuelan oil, which U.S. Gulf Coast refineries need to produce oil products. It is just as welcome elsewhere where refineries need heavy and sour crude to operate.
At the same time, some refiners are switching to light crude, thanks to a booming supply from U.S. shale, Libya, and Nigeria. This switch has fed higher demand for Nigerian light crude, with the Forcados blend trading at a US$1.70 premium to dated Brent. Angola’s Cabinda is changing hands at a three-year-high premium to the benchmark at US$0.40 per barrel, and so is Girassol, at US$0.50 per barrel.
It’s likely that this will change as the capacity cuts in China’s state-owned refineries are felt, but it is possible that strong demand from Europe and North America will compensate for this capacity reduction. Already two-thirds of Angola’s September exports have been bought, within a week of them being made available.
By Irina Slav for Oilprice.com
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