- Nigeria In Trouble as Saudi Arabia Continues to Offer Huge Oil Discounts
The Kingdom of Saudi Arabia continues to offer huge oil discounts to Asian buyers in a move that suggests the oil giant is fending off competitors due to the drop in global oil demand.
Despite calls to ease global oil glut amid record low prices, the state-owned energy giant, Saudi Aramco, on Thursday set its June selling price for Arab Light grade crude to Asia at $5.90 per barrel below the benchmark price.
While this is smaller than the discount offered in May, it represents efforts to pressure rivals, especially other oil producers from the Middle East and Russia.
People familiar with the situation said Saudi Arabia is not ready to lose customers in Asia, which it predicts to represent two-thirds of its oil sales through the end of 2025.
Nigeria has not been able to find buyers for most of its April loading due to the drop in demand for crude oil and global lockdown. India, the nation’s largest oil importer and the world’s third-largest importer of the commodity, reduced oil imports by 60 percent in April as it struggles to curb the spread of COVID-19 pandemic.
However, with the Kingdom’s huge discount directed towards Asian buyers, Nigeria and other oil-producing nations with Asians as main buyers may suffer substantial market share to the oil giant when economies finally reopen.
Saudi Arabia’s cost of production per barrel remained low at $4 while Nigeria’s cost of production stood at $17 per barrel. Therefore, Nigeria just does not need oil above $17 to profit but also needs to reduce the cost of production to compete with the likes of Saudi Arabia, Iraq and Russia.
India may not return to Nigeria after the lockdown in May given Saudi’s huge discounts and proximity to the country when compared to Nigeria.
Therefore, Nigeria would have to look elsewhere to fund the 2020 budget as sales may drop even further.