India's impact on Nigerian crude market strengthening

Singapore (Platts)--18Apr2013/312 am EDT/712 GMT

India is beginning to supplant the US as the world's most significant importer of Nigerian crude and is fast becoming a key fundamental in Nigerian crude trade as the West African country comes to terms with its declining sales into the North American market, market sources said this week.

The surprising growth of US domestic light shale oil production has resulted in a sharp 63% drop in US dependence on imports of light sweet Nigerian crude in just five years -- from a peak of 1.084 million b/d in 2007 to just 405,000 b/d last year, according to data from the US Energy Information Administration. The 2012 volume was the lowest since 1985 when crude imports from Nigeria averaged 280,000 b/d. And it appears volumes are still falling.

With US reliance on Nigeria diminishing, rising demand from India is not only starting to affect fundamentals of the Nigerian and West African crude market -- something it has not hitherto done -- but is also now supporting prices of Nigerian crude in relation to benchmark Brent.

India is poised to take at least 13 cargoes, or 17%, of the 75 scheduled for export by Nigeria in May, making it the single biggest importer of Nigerian crude next month, according to Platts data. In March and April, India took six and seven cargoes respectively, the data show.

"The Indian refiners have a healthy appetite for Nigerian grades and with less going to the US they are a much big player on the market. The Indian crude tenders always play a role on the WAF market," a Geneva-based trader of West African crude said.

The Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL) and Mangalore Refinery and Petrochemicals Limited (MRPL) are all significant buyers of Nigerian crude, each buying at least four or five of the main Nigerian grades every month. All four buy these crudes through tenders, which are normally announced on a monthly or fortnightly basis.

IOC normally takes two to four cargoes every month, preferring middle distillate-rich grades like Qua Iboe, Forcados and Bonny Light, while BPCL is keen on lighter grades like Akpo and Agbami, which are rich in gasoil and naphtha.

"We like buying Nigerian light sweet crudes as they have a good gasoil yield. That is the main reason we buy such crudes as we want gasoil rich crudes, and there is very good demand for gasoil in India," said a trader with an Indian refiner.

"Sometimes when naphtha is strong we also buy West African crudes like Agbami and Nemba which are rich in that product. We saw this trend last year when naphtha was strong."

Over the past three months HPCL has been importing crudes like Qua Iboe and Brass River, while MRPL tends occasionally to buy Nigerian and Angolan crudes. These two refiners are key importers of Iranian crude but have recently had to deal with concerns that their plants will not be properly insured if they process Iranian oil. As a result, they have been forced to look to other suppliers, particularly in the Middle East and West Africa, market sources say. Demand for Nigerian crude from these two refiners, and from HPCL in particular, has also risen in recent months.

"Yes, India is definitely buying much more [WAF crude] nowadays but I don't think it is entirely to do with the Iran issue. Iranian crude is very different from Nigerian crude so I wouldn't say Nigerian imports are replacing Iranian crude imports. However, at the end of the day it all comes to down to the type of refinery and economics of the crudes," a trader with an Indian refiner said.

BPCL is set to take three or four cargoes in both April and May. In March, the refiner imported no Nigerian crude at all, while in February it imported one cargo of Agbami.

At the same time, private Indian refiners like Essar and Reliance have not been buying much Nigerian or West African crudes recently. Sources say these companies prefer to buy the cheaper heavy sour crudes that their complex refineries are capable of processing.

With the US buying lower volumes of Nigerian crude, there have been some concerns that this could depress prices for Nigerian crude, which are valued at premiums or discounts to benchmark grades.

In fact, differentials for West African grades in the first quarter of this year have been stronger than had been expected at the beginning of January, especially given that some of these crudes lost a lot of value last year.

On April 3, Platts data showed Nigeria's flagship grade Qua Iboe worth a premium of $3.60/barrel to Dated Brent, the highest assessment since October 6, 2011, when the continued absence of Libyan sweet crude from the market as a result of the civil war boosted demand for Nigeria's light sweet grades.

Premiums for Qua Iboe over Dated Brent are running at $3.10/b this week, sources say.

Traders attribute these high premiums largely to buoyant Indian demand but also to the frequent disruptions in Nigerian supply caused by sabotage.

Indeed, there has been talk on the market that with so many loading delays and production issues some refiners might be inclined to look elsewhere and avoid the uncertainty with which the Nigerian market has become synonymous.

There has been no evidence of this so far. "But with more and more news of force majeure and production problems in Nigeria, we have to keep a close track of what is happening in Nigeria," said a trader with an Indian refiner. "If a certain grade is on force majeure then we will definitely not buy it."

--Eklavya Gupte, eklavya_gupte@platts.com

--Daniel Colover, Daniel_colover@platts.com

--Edited by Margaret McQuaile, ; Jonathan Fox, jonathan_fox@platts.com