The Crude Report: WAF-to-Asia flows at lows

Author Argus

Exports of west African crude to Asia-Pacific refiners plummeted to 1.7mn b/d, amid the spread of the Covid-19 Delta variant, low import quotas in China and refinery shutdowns in India.

In this episode of The Crude Report, Argus West Africa Oil editor Nicola de Sanctis gives more details on other options opening up for WAF producers.

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Transcript

Jessica: Hello and welcome to The Crude Report, Argus's podcast series covering global crude oil markets. My name is Jessica Tran for Argus Media.

Just like all oil producing regions, west Africa has been reliant on demand from Asia-Pacific. But unfortunately, according to Argus data, west African crude exports to Asia-Pacific have plummeted to 1.7mn b/d, even lower than when the pandemic was at its seemingly lowest point last year.

With me for this episode is Nicola De Sanctis, one of our Crude Oil Deputy Editors and the Editor for our Argus West Africa Oil service. Welcome, Nicola, and thanks for joining us again.

Nicola: Hey, Jessica. Hope you're safe and well, and thanks again for having me back on the podcast.

Jessica: So to start, how are WAF exports to Asia looking, considering all the uncertainty around Covid?

Nicola: I'd say that the picture could be rosier for sellers of west African crude trying to place their cargoes in Asia-Pacific at the moment because... I mean, obviously, the main outlets for west African crude are China, that's mainly for Angolan crude, and India for Nigerian supplies. And last month, they haven't taken a lot. So, basically, as you said, like, exports declined to, you know, just over 1.7mn b/d, which is the lowest since October 2015 – so, awhile back. And it's down by 50pc from the 2mn-plus in June. So, as you can see, there was, like, a massive slope in demand. And we do believe that is due to mostly weak arbitrage for eastbound shipments of Atlantic basin crude, which is basically shifting the refiners' focus to Dubai-linked crude from the Mideast or destocking from storage.

So, the crude destocking in China actually started, I would say, a couple of months ago and is still running. And basically, this is combined with some limited crude imports quota for Chinese independent refiners, which take quite a few cargoes of Angolan crude.

So if you mix this with very low Angolan exports in July, which actually fell below 1mn b/d, which is the lowest since, you know, at least 2007, is the lowest since Argus actually started tracking exports of the Angolan supplies. So, basically, this is the perfect storm. And as I said, like, exports dipped to 1.7mn b/d. So now we got the December...the trade for September cargoes actually closed, didn't exactly close, but now we're seeing October cargoes trading for September, which is like next month.

The demand from China has also been rather weak. And we've seen Sinopec’s trading arm Unipec that has repeatedly offered a handful of Angolan and Congolese supplies on the market. Now, if Unipec offers cargo in the market, obviously it's going to put pressure on prices as the firm is by far the major buyer of Angolan crude, and I would say, west African crude overall.

If we talk about October cargoes, trade started last week, and it kind of looks like Chinese buying interest actually has bounced back a bit. But I think it's still too early to understand how the trading cycle could pan out, to be honest.

Talking about Indian demand for July, that one also fell to 250,000 b/d, which is, according to our data, the lowest since June 2020. Obviously, the spread of the Delta variant in May and June, when most of the July cargoes traded hasn't helped, and has actually pushed refiners to scale back the purchases. We also saw IOC, which is the largest refiner in the country, shutting down its Paradip refinery, which usually receives most of the west African crude heading to India. It closed in July – I'm not sure whether it has reopened – I think so, but I can't be sure on that.

So, for India as well, we can see that arbitrage opportunities for Mideast crude pushed IOC to target grades from the UAE mainly. Nowadays, IOC buys, I would say, around 2 and 3mn bls of west African crude, especially Nigerian crude, out of a total of 7, 8mn bls purchases per tender. They tender almost weekly for their requirements, obviously. So basically, out of the 7, 8mn bls purchases, Nigeria is probably 2mn bls, and the balance is usually formed by cheaper grades from the UAE at the moment. This compares to for instance, one or two years ago, the refinery would actually take, I'd say, 4 or 6mn bls of west African crude per tender, so as you can see, like, there's not much demand for west African crude in India. And even despite, the differentials for Nigerian crude are very low, perhaps, like... We still need to see how trade evolves for a lot of, like, September cargoes that are still unsold, and the October supplies, which have started to trade, say, like, a couple of days ago.

Jessica: And if I remember correctly, there were a smaller percentage of WAF crude that would go to European refiners. How's demand looking there?

Nicola: Yeah, you're correct. Like, a small percentage of Angolan crude, that's for sure. Nigeria crude tends to go to Europe. But now, we are seeing that interest from European buyers has resumed from the lows of the first quarter as countries are gradually...I mean, at ease restrictions and demand for middle distillates picked up ahead of the driving season. But I'd say it still remains a bit timid. Refiners now tend to see Nigerian grades as a plan B, with other alternatives for Russia, or Caspian, or from the Mediterranean, offering cheaper options at the moment. Also, you can't really overlook the fact that several refineries in Europe are either shutting down facilities or in the process of converting them to produce biofuels, which obviously is not helping. And also there are issues, like, the loading issues, Nigerian terminals such as the one from Forçados, Qua Iboe, and Brass River, that are hampering demand for the grades.

We've seen, like, that demand is quite subdued, but actually, sellers are finding alternative outlets in Europe for Nigerian grades, namely, the Grupa Lotos refiner in Poland. They used to take heavy sweet Nigerian crude such as Ebok, but have started taking medium sweet Forçados recently, for the first time. They processed, like, a cargo in mid-May, I believe. And even more recently, they have taken a cargo of fellow Nigerian Jones Creek blend. And Jones Creek blend is in line with the Forçados purchase, as it used to be part of the Forçados stream up to 2018.

And there is also another refiner that has taken crude for the first time since 2019, I believe, which is this Croatian refiner, INA, around 600,000 bls of crude, mainly Nigerian crude. It's actually only... The Nigerian crude is split between Bonga and Egina to medium sweet grades, offloaded at the Omisalj terminal in Croatia – I'm not sure if the correct pronunciation of that is my best shot – offloaded there between 31 August and 9 September, and that's the first time since August 2019, according to our tracking. The cargoes, as I said, are probably destined for INA's Rijeka refinery – again, I'm not the best when it comes to Croatian names. We believe that the refinery might hope for Nigerian grades to take advantage of differentials in Nigeria, which are still quite low. And they are coinciding with rising values for crude from Kazakhstan or Azerbaijan, which are usually ferried by INA. To wrap it up, we're definitely seeing some diversification in terms of outlets in Europe at the moment.

Jessica: Are there any alternative outlets for WAF crude outside of Europe and Asia?

Nicola: In Asia, at the moment, we're not seeing the same diversification obliviously in Europe, whereas we are tracking some new routes towards the US. So, basically, like, we have, like, some substantial flows going towards Louisiana. And it's not the first time, but flows of west African crude grades to Louisiana has really intensified over the second quarter. And I believe because refiners and blenders are basically on the hunt for medium and heavy sweet grades. When it started in April, trade is preceded as a, I would say, isolated buy interest spike for medium and heavy grades. But this unusual route, I believe, that now has become a stable one. So, around 5mn bls of west African crude have left for Louisiana since April, and almost specifically for the St. James logistics hub. This kind of compares with a total of...no, even 3mn bls in the old 2020, for the US Gulf, so not just Louisiana.

So we've seen in 2020, that cargo of Lokele from Cameroon went to Louisiana, of course. Another one of Dalia from Angola to St. James, and another one of light sweet Qua Iboe to Corpus Christi. So we're talking about like heavy sour Lokele from Cameroon, heavy sweet Dalia from Angola, and light sweet from Nigeria. Now, what we're seeing at the moment is that there is a much greater... Sorry, actually, a small diversification case of the 5mn bls departed for Louisiana. Exports were mainly split between medium sweet Bonga from Nigeria and heavy sweet Dalia from Angola, apart from, again, a cargo from Cameroon. Except for just 1mn bls of Bonga discharging in Houston, the rest of the supplies were booked for the St. James terminal. Now, some traders reckon that a shortage of regionally available medium and heavy sweet grades might prompt refineries in Louisiana to scale up their intake of Nigerian and Angolan grades. But it is still unclear where the supplies might end up as crude are arriving at St. James, could actually be dispatched to several refineries or even injected into a pipeline system which are massive, such as the Plains All American Pipeline system. This one reaches facilities throughout the US and up to Canada. So it's really hard to track down.

I believe the most likely recipients for the cargos could be the local refinery of Shell, Marathon's Garyville, or Exxon Mobil's Baton Rouge. Although they could also reach New Star Energy, which is a logistics company with facilities right next to the St. James terminals. Now, talking about this as an outward, just because west African export usually are destined for the Atlantic coast, for refiners in Pennsylvania, or Delaware, or even Canada, or to Los Angeles on the east coast. So, as you can see, in the US as well, sellers are planning alternatives. The demand is subdued but the situation for west African crude, I believe, is not all doom and gloom for the moment. So, we can still see some niche outlets taking west African crude.

Jessica: Great. Thanks for taking the time to update us on west African oil markets. There's a lot going on.

Nicola: No, no worries.

Jessica: If you're looking for a source focused on west African oil markets, not just crude oil, but also refined products, consider subscribing to the Argus West Africa Oil service. For more information on this service and all of our other crude oil services, visit www.argusmedia.com. Thanks for tuning in this week. And we hope you'll come back next week for another episode of The Crude Report.

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