Nigeria crudes struggle against US oil in Europe despite high diesel cracks

Nigerian sweet crudes have struggled to find homes in the European market despite the relative strength of diesel cracks in Europe, as competition among the Atlantic Basin sweet crude grades heightened in the last two months, according to a Hellenic Shipping News report.

Refiners in Northwest Europe are said to be seeing more offers of US crudes of late, which are sweet grades that compete directly with Nigerian crudes, contributing to an overhang of Nigerian crudes and a sharp drop in pricing differentials of these sweet crudes since the start of March. But there appears some hope of support emerging for the more distillate- rich grades in the future if diesel crack spreads hold.

Europe is one of the key consumer markets for Nigerian crudes, followed by India, and distillate-rich grades such as Qua Iboe, Forcados, and Bonny Light have met with limited buying interest from the European refiners, slowing down the sale of cargoes loading over May and June, sources said.

“Overhang is dragging into the next month. May have to clear first and then we look at June…Depends on how long [it takes for May to clear],” a trader focused on West Africa said.

For the June programs, eight out of the 10 Forcados cargoes were still available, and around six out of the eight Qua Iboe cargoes were also unsold, according to one trader’s estimates.

The influx of competing for US sweet crudes has been stoked by the widening ICE WTI-Brent spread, which has risen $2.28/b since the start of March to $5.31/b spread on Wednesday.

As a result, the relative strength in European diesel cracks has failed to drive a substantial appetite for the Nigerian distillate-rich grades given the rising competition among the Atlantic basin’s sweet crudes, and have driven pricing differentials for Nigerian sweet crudes lower over the last two months.

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Since the beginning of March, Nigeria’s Forcados has fallen by 70 cents to an 85 cents/b premium to Dated Brent on Wednesday, and Qua Iboe’s has fallen to a similar extent even with a shorter program for May due to planned maintenance over the first week of May.

The whole Nigerian market had been hit by weak demand, not just the distillate-rich grades, also affecting the sales of the light sweet offshore grades, Agbami and Akpo, sources said.

These offshore grades would typically be snapped up early in the trading cycle, with traders saying that June cargoes were mostly unsold.

“More than 60% of Agbami program still available…and Akpo, almost all of it,” the trader said.

However, if diesel cracks remain high, some traders say they expect some support for certain Nigerian crudes to emerge, and a divergence between the distillate-rich Nigerian and light-end rich grades.

Diesel cracks were last assessed by S&P Global Platts at $12.91/b on Wednesday, higher than gasoline cracks, which lagged behind at $10.06/b, which is unusual for this time of year.

Typically, moving into the northern hemisphere’s summer season, gasoline cracks would widen and move above the diesel cracks as consumption of gasoline rises over the summer driving season in the US.

However, this year, the European diesel market has held its relative strength to gasoline given the lack of arbitrage flows of diesel to Europe, which have been diverted to Latin America instead.

“I see Forcados/Erha/Bonga…about 20 cents/b up…[Europe’s] refineries coming back from maintenance and the more normal spreads of those grades vs Bonny/Qua re-establishing themselves after a slack period…this cycle [for June] feels stronger than the last,” a trader said.

The exception among the distillate-rich crudes was Qua Iboe, the trader added, saying: “Qua has suffered somewhat from reliability…dates constantly getting pushed back.”

In the latest Qua Iboe program for June seen by S&P Global Platts, the last May cargo, that was originally scheduled to load over May 28-29 had been pushed into June to load over May 31-June 1.