Emmanuel Addeh in Abuja
A glut of unsold Nigerian oil has built up again with as much as half of output due to be loaded next month still searching for buyers, a Bloomberg report said yesterday.
Traders of the nation’s oil said the surplus has been caused in part by a request for back taxes from shipping companies, which caused a wariness among some of the firms about sending their vessels to collect the West African nation’s barrels.
While the government subsequently clarified that there would be a six-month grace period to comply with the tax request, traders said the lack of sales demonstrated that Nigeria needs to do more to resolve the issue.
The surplus is a sign that global reductions in oil supply from leading producer nations is yet to tighten every market. There are between 20 and 22 cargoes that remain unsold for July, about half the total, according to the traders of West African crude. Shipments are typically about one million barrels.
Earlier this month, some ship-owners were said to be avoiding the West African nation after a series of multi-million dollar tax bills were sent out, seeking to claw back unpaid duties from 2010-2019.
The country’s tax authorities have given shipping companies the grace period to reconcile the tax backlog through a committee involving shippers and regulators.
The cost of shipping oil from Nigeria stood at $53,463 a day as of Thursday, above the year-to-date average, according to data from the Baltic Exchange. Freight for ships hauling about 1 million barrels of crude from Nigeria to Europe surged the most in more than a year last week because of the tax issue.
Nigeria’s slow sales contrast with a more bullish picture in Angola, where crude supplies are sold out for July and differentials are inching higher, the people said. Supplies from Gabon and Chad are also mostly sold for July, the Bloomberg report said.
Much of Angola’s output is of a heavy-sweet variety that is popular with refiners in China, where demand remains healthy.
Angola’s Cabinda grade traded at a 60-to-70 cents a barrel premium to Dated Brent for July loading earlier this week, increasing from a premium of 30 cents for June barrels.
Meanwhile, Nigeria has accumulated up to $3 billion in debts to trading houses such as Vitol and oil majors such as BP for fuel supplies and is trailing four to six months behind schedule in repaying them with cargoes of crude, four traders and executives have told Reuters.
Nigeria will likely take months to clear the debt, which will complicate reforms by new President Bola Tinubu aimed at weaning Africa’s largest economy and most populous nation off costly fuel subsidies that have contributed to growing debt and foreign exchange shortages.
In his first two weeks in office, Tinubu removed petrol price caps and restrictions on the naira currency – liberalisation changes that investors have been awaiting for more than a decade.
As part of those reforms, Nigeria, Africa’s top oil producer, plans to scrap an old scheme by which it swaps its crude for gasoline imports. Nigeria for years sold gasoline, bought at the open market price, to its population at a discount, and the government paid the difference.
The subsidy cost about $10 billion last year. The last time the government tried to end the scheme, the move led to protests. Nigeria needs imports because it lacks the refinery capacity necessary to meet domestic demand.
The head of Nigeria’s state oil firm, the Nigerian National Petroleum Company (NNPC), Mele Kyari, said earlier in June that it was ending the swaps – known as Direct Purchase Direct Sale (DSDP) – after years of criticism by civil society groups, including the Nigerian Extractive Transparency Initiative (NEITI) for a lack of transparency and corruption.
Kyari said payments would be now made in cash but traders say NNPC is still importing petrol via swaps for July delivery and has to pay for those cargoes in crude as well as the pending payments for previous months of swaps.
The arrangement has for years involved more than a dozen foreign and local trading consortia and back payments are expected to continue until at least October 2023, according to the four traders involved in business with NNPC.
NNPC, which claims the government owes it $6 billion for subsidised fuel sales, declined to comment. The government declined to comment. Swaps participants including Vitol, Mercuria, BP and TotalEnergies also declined to comment, according to Reuters.
“Swaps will ultimately stop but not yet. We are getting our swaps crude cargo in October at the earliest,” one major player said, according to the Reuters report.
NNPC had made a rare cash payment in May to some partners of around $200 million, two trading sources said, but no further payment has taken place since amid the government’s cash struggles.
Nigeria’s falling oil production has exacerbated the country’s fiscal problems, because it reduces the revenue that could be used to repay debt.
Nigeria used to produce 1.8 million barrels per day of crude but output has fallen in recent years to as little as 1.1 million due to lack of investment.
Paying for fuel deliveries with crude cargoes means there is less crude for Nigeria and NNPC’s to export, and so less revenue.
NNPC’s contribution to state coffers went from a peak of more than $30 billion a year in 2011 to zero in 2022 as it retained revenues to cover petrol sale losses.
International monetary experts have long suggested Nigeria remove fuel subsidies and liberalise its foreign exchange to address its fiscal crisis.
In recent years, Nigeria’s central bank kept the naira fixed at an artificially high rate that gradually rose from N200 to N450 to the dollar that only a few players, including the NNPC, could access. That shut out potential private gasoline importers from the market.
Tinubu allowed the naira to fall steeply in recent weeks, and eliminated preferential naira rates, a move that means all potential importers get the same forex costs and could compete in fuel imports.
But the naira volatility, which makes it tough to calculate potential profits, and uncertainty over whether firms will be able to get money out of the country due to continued dollar shortages, has for now deterred private firms from importing fuel.
Besides private importers, Nigeria will also depend on businessman Aliko Dangote’s refinery to cover fuel demand in the future. Nigeria’s first major oil plant is unlikely to start full-scale operations before next year, the Reuters report stated.
