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Foreign Crude Oil Refiners Extend Credit Facilities to Nigerian Marketers Amid Dollar Scarcity

Challenges Emerge as Subsidies End, Forex Scarcity Persists

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In a strategic move to alleviate the challenges posed by dollar scarcity in Nigeria, foreign crude oil refiners have embarked on a novel approach by offering credit facilities to Nigerian oil marketers, according to insider sources.

Concerns have arisen among foreign refiners about potential loss of a significant market due to the removal of subsidies, leading to a marked reduction in the country’s petrol consumption.

This, coupled with forex scarcity and soaring inflation rates, has eroded the purchasing power of marketers for petrol imports.

A reliable source revealed that foreign refiners have initiated discussions with Nigerian oil marketers, offering credit terms for product procurement. However, accepting credit involves higher interest rates and additional charges.

“As of today, it pays you more to buy than to import because of the FX rate that has been going up. If you take products from the likes of Glencore and others, you would be exposed to high forex rates when you want to pay for the product.

“As a matter of fact, foreign refiners have been asking for meetings with Nigerian oil marketers because they want to give us products on credit because a lot of people don’t have that money to buy. But if you accept products on credit from them, the interest rate would also be higher, and you would also pay some charges,” the source stated.

Foreign banks have also emerged as a financing source for marketers striving to navigate the importation challenge, given the reluctance of local banks to expose themselves to forex volatility.

Official data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority unveiled a first-half 2023 consumption of 11.26 billion litres, indicating a substantial reduction from the pre-subsidy removal figures.

Independent marketers are echoing calls for a transition from import dependency to revitalizing domestic refining operations.

Adebowale Olujimi, CEO of Emadeb Energy, emphasized that the path to sustainability lay in local refinery resuscitation, citing the financial strain and instability linked to importation.

“Petrol importation is not a sustainable way for a country to run. PMS price rising to over N600 per litre is an indication that the dynamics of the business are a tough one. It requires huge US dollars to bring products. The way forward is for local refineries to be revived,” he said.

In parallel, reports from Reuters underscore similar trends, with international refiners seeking to bolster exports to Nigeria in response to changing dynamics.

Argus-sourced data highlighted a surge in Russian petrol exports to Nigeria, soaring from 3,700 barrels per day in 2022 to 24,000 barrels per day in 2023.

As Nigeria navigates these shifts in its energy landscape, collaboration between foreign refiners and local marketers, alongside the pursuit of sustainable domestic refining, will likely shape the nation’s energy future.

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Crude Oil

Oil Prices Surge as Hurricane Francine Disrupts U.S. Gulf Production, Brent and WTI See Gains

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Oil prices rose on Friday, extending a rally sparked by output disruptions in the U.S. Gulf of Mexico, where Hurricane Francine forced producers to evacuate platforms before it hit the coast of Louisiana.

Brent crude oil, against which Nigerian crude oil is priced, rose by 34 cents, or 0.5%, to $72.31 per barrel while U.S. West Texas Intermediate crude futures rose by 38 cents, or 0.6%, to $69.35 a barrel.

If those gains hold, both benchmarks will break a streak of weekly declines, despite a rough start that saw Brent crude dip below $70 a barrel on Tuesday for the first time since late 2021. At current levels, Brent is set for a weekly increase of about 1.7%, and WTI is set to gain over 2%.

Oil producers assessed damages and conducted safety checks on Thursday as they prepared to resume operations in the U.S. Gulf of Mexico, as estimates emerged of the loss of supply from Francine.

UBS analysts forecast output in the region in September will fall by 50,000 barrels-per-day (bpd) month-over-month, while FGE analysts estimated a 60,000 bpd drop to 1.69 million bpd.

The supply shock helped oil prices recover from a sharp selloff earlier in the week, with demand concerns dragging benchmarks to multi-year lows.

Both the Organization of Petroleum Exporting Countries and the International Energy Agency this week lowered their demand growth forecasts, citing economic struggles in China, the world’s largest oil importer.

A shift towards lower-carbon fuels is also weighing on China’s oil demand, speakers at the APPEC conference said this week.

Official data showed nearly 42% of the region’s oil output was shut-in as of Thursday.

China’s crude oil imports averaged 3.1% lower this year from January through August compared to the same period last year, customs data showed on Tuesday.

“Flagging domestic oil demand in China has become a hot topic and was further underlined by disappointing August trade data,” FGE analysts said in a note to clients.

Demand concerns have grown in the United States as well. U.S. gasoline and distillate futures traded at multi-year lows this week, as analysts highlighted weaker-than-expected demand in the top petroleum consuming country.

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Oil Prices Surge as Hurricane Threat Looms Over U.S. Gulf Coast

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Oil jumped in Asian trading on Monday as a potential hurricane system approached the U.S. Gulf Coast, and as markets recovered from a selloff following weaker-than-expected U.S. jobs data on Friday.

West Texas Intermediate crude oil rose 72 cents, or 1.06%, to $68.39 a barrel while Brent crude oil was up 71 cents, or 1%, at $71.77 a barrel.

Prices had gained as much as $1 during early Asian trading before pulling back.

Analysts said the bounce was in part a reaction to a potential hurricane in the U.S. Gulf Coast.

A weather system in the southwestern Gulf of Mexico is forecast to become a hurricane before it reaches the northwestern U.S. Gulf Coast, the U.S. National Hurricane Center said on Sunday.

The U.S. Gulf Coast accounts for some 60% of U.S. refining capacity.

“Sentiment recovered somewhat from last week’s selloff,” said independent market analyst Tina Teng.

At the Friday close, Brent had dropped 10% on the week to the lowest level since December 2021, while WTI fell 8% to its lowest close since June 2023 on weak jobs data in the U.S.

A highly anticipated U.S. government jobs report showed nonfarm payrolls increased less than market watchers had expected in August, rising by 142,000, and the July figure was downwardly revised to an increase of 89,000, which was the smallest gain since an outright decline in December 2020.

A decline in the jobless rate points to the Federal Reserve cutting interest rates by just 25 basis points this month rather than a half-point rate cut, analysts said.

Lower interest rates typically increase oil demand by spurring economic growth and making oil cheaper for holders of non-dollar currencies.

But weak demand continued to cap price gains.

The weakness in China is driven by economic slowdown and inventory destocking, Jeff Currie, chief strategy officer of energy pathways at U.S. investment giant Carlyle Group, told the APPEC energy conference in Singapore on Monday.

Refining margins in Asia have slipped to their lowest seasonal levels since 2020 on weak demand from the two largest economies.

Fuel oil exports to the U.S. Gulf Coast fell to the lowest level since January 2019 last month on weaker refining margins.

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Oil Prices Rebound on OPEC+ Output Delay Talks and U.S. Inventory Drop

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Oil prices made a modest recovery on Thursday on the expectations that OPEC+ may delay planned production increases and the drop in U.S. crude inventories.

Brent crude oil, against which Nigerian oil is priced, rose by 66 cents, or 0.9% to $73.36 per barrel while U.S. West Texas Intermediate (WTI) crude appreciated by 64 cents or 0.9% to $69.84 per barrel.

The rebound in oil prices was a result of the American Petroleum Institute (API) report that revealed that the U.S. crude oil inventories had fallen by a surprising 7.431 million barrels last week, against analysts 1 million barrel decline projection.

The decline signals better than projected demand for the commodity in the United States of America and offers some relief for traders on global demand.

John Evans, an analyst at PVM Oil Associates, attributed the rebound in crude oil prices to the API report.

He said, “There is a pause of breath and light reprieve for oil prices.”

Also, discussions within the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are fueling speculation about a potential delay in planned output increases.

The group was initially expected to increase production by 180,000 a day in October 2024.

However, concerns over softening demand in China and potential developments in Libya’s oil production have prompted the group to reconsider its strategy.

Despite the recent rebound, analysts caution that lingering uncertainties around global oil demand may continue to weigh on prices in the near term.

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