InfoStride News reported on December 5 that the Nigerian National Petroleum Company Limited (NNPCL) is set to change its crude pricing strategy, transitioning from the current method, which bases prices on the average settlement of Dated Brent in the five days post-loading, to utilizing the monthly average of Dated Brent, the physical-crude benchmark. This adjustment, scheduled to take effect in January 2024, introduces potential risks to the country’s crude supplies, as noted in the Bloomberg report.
Oil market traders, cited in the report, expressed concerns that the shift in pricing methodology may expose the cargoes to increased volatility, akin to the fluctuations observed in broader oil markets. The altered approach could necessitate a greater reliance on hedging strategies due to the less precise timeframe used for pricing the cargo.
The circular from NNPCL, as highlighted by Bloomberg, indicated that the company intends to maintain the initially nominated loading dates for pricing purposes. However, traders mentioned in the report anticipate difficulties in comparing the prices of NNPC’s shipments to Europe with cargoes from the Mediterranean and North Sea, as well as WTI Midland, most of which are priced using the existing five-day system. This may potentially make the nation’s barrels less competitive in the global market.
As the Nigerian government aims to attract more upstream oil investments, its three-pronged plan includes combating crude oil theft to boost production (new OPEC quota set at 1.5 million barrels per day), engaging local communities in the Niger Delta for regional development, and providing employment alternatives for the young population in the Niger Delta to reduce the attractiveness of crude oil theft.
An oil industry analyst, speaking on condition of anonymity to InfoStride News, emphasized that Nigeria, while being a top oil producer in Africa, is also a legacy producer in the African oil industry. The analyst pointed out that newer oil markets on the continent have attracted many international oil companies, leading to divestment by companies like Equinor in recent times. Given this context, the country cannot afford to add more risk to its oil market through changes in supply pricing, especially when it is striving to become a net exporter of petroleum products. This strategic shift aligns with the planned resuscitation of local refineries by the end of 2024 and the anticipated startup of the 650,000 barrels per day Dangote refinery.
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