Analysts have said that Nigeria’s crude oil, which has been grappling with growing competition in the international market in recent times, has a new challenge to contend with: the imminent increase in Iranian oil in the market. Six world powers, including the United States, on Tuesday reached a deal with Iran on limiting its nuclear activity in return for the lifting of international economic sanctions.
It would be recalled that in 2012, the US and European Union imposed sanctions on Iran’s energy and financial sectors, and the country’s oil exports have been cut nearly in half as a result, according to the US Energy Department. Analysts said the nuclear deal between Iran and the world powers had raised the prospect of a fresh oil glut further pressuring prices and increasing competition among suppliers.
Mr. Dolapo Oni, who is the Head of Energy Research at Ecobank Capital, said that with the deal signed, the Nigeria would be moving to conclude negotiations to dispose of crude in its floating storage, estimated at about 40 million barrels. According to him, the sale would be on a spot basis and could be heavily discounted to penetrate the highly competitive market in Asia.
Mr. Oni added: “I suspect the top targets will be India and Indonesia, who are also top buyers from Nigeria. These two countries are heavy buyers of Nigerian spot cargoes, which are having a bad time in the market so far in 2015. This could considerably displace Nigeria’s August/September cargoes, while as exports resume, another few hundred thousand barrels may hit the market on a consistent basis. This could have a longer term impact of knocking some spot cargoes (including those of Nigeria) out of Asia with the region’s oil demand still weaker than expected.”
Oni said this could mean Nigeria would have to accept further discounts on its crude oil cargoes to find markets for them.
He said: “We will also have to accept that some of our cargoes may clear the market a lot later than usual. This could impact negatively on revenues in the second half of the year.
The major impact is really the extent to which the market prices in the additional capacity once full exports resume. The new supply could keep prices below $60 for quite a while, barring any major geopolitical event/supply shocks.
Ms. Temilade Esho, who is an analyst for Oil and Gas Africa at Renaissance Capital, told our Tectono that the major implication would be the further fall in oil prices.
In Ms. Esho’s words: “Iran could add a significant amount of stored oil to the global supply which will cause a fall in oil prices. This is favourable to the new OPEC strategy as this could force some shale producers out of business. Nigeria will have a tough time looking for new markets in Asia and Europe with this new influx of supply.”