By Simon Falush
LONDON (Reuters) - Angolan crude oil is poised to outshine Nigerian barrels in coming months, with the discount for the relatively heavy, sour crude likely to shrink because of shifting demand dynamics and the unreliability of Nigerian supply.
Combined with weaker output levels, this will put the brakes on growth for Nigeria, Africa's second largest economy, and for decades the leading supplier of crude oil from the continent.
"Refiners are seeking heavier grades now because there is more value, and I would expect this trend to continue," Rolake Akinkugbe, head of energy research at the pan-African Ecobank Group, told Reuters.
Oil and gas account for around 80 percent of Nigerian government revenues and 90 percent of foreign exchange earnings.
In June, Nigeria is due to export around 1.85 million barrels per day (bpd), the lowest since September according to Reuters data, and only marginally more than Angola, where disruption to output is much more rare.
Historically, Nigerian crude has commanded a hefty premium to Angolan grades because it tends to be lighter and contain less sulphur, making it easy and cheap for refiners to produce so-called light-end gasoline and naphtha.
But sinking demand for gasoline in Europe, where cars are becoming more efficient and drivers switching to diesel vehicles has made gasoline less profitable for refiners to produce.
Meanwhile China, which has strong appetite for heavier crude oil to power its booming economy, continues to see demand grow.
Overall demand for oil in Germany, Europe's most resilient major economy, will fall 1.6 percent in 2013, compared to a 3.8 percent rise for China in 2013, according to the International Energy Agency's monthly oil report in April.
"Angolan crude is not so exposed to European demand as Nigerian, while China continues to buy at least 50 percent of the programme," said one trader.
China's daily crude oil imports in April rose 3.7 percent from a year earlier to 5.62 million barrels per day (bpd), according to Reuters calculations based on customs data on Wednesday.
LOWER EXPOSURE
"While the Chinese miracle continues, Angolan oil will continue to enjoy a relatively easy ride versus light sweet," the trader said.
While refining margins for gasoline stay relatively weak, strong global demand for fuel oil saw refining margins for high sulphur fuel oil reach its highest since last June in April, according to Reuters data. The margin remains strong.
In addition, Saudi Arabia is putting on line three new refineries, each able to produce 400,000 barrels per day of mainly heavy crude by 2017.
These will soak up nearly a tenth of Saudi's 12.5 million bpd officially declared output capacity when fully operational and will mean a substantial amount of heavy crude that would have reached the international market no longer will, cutting back competition for Angola's heavier grades.
For Nigeria on the other hand, customers are finding that an unreliability of flow of its grades is acting as a disincentive which is undermining differentials they are willing to pay.
Nigerian crude oil production is falling well below expectations this year due to widespread oil theft that prompted Shell to shut down a 150,000 barrel per day pipeline in mid-April for six weeks.
Criminal gangs frequently tap into exposed pipelines in the winding creeks and waterways in the Niger Delta, and this has led to a series of force majeures including for the benchmark Qua Iboe grade.
"If buyers find that sellers are unable to meet contract terms, they will look at other grades where there is stability of supply, and they may look for a discount to reflect the unreliability," said Akinkugbe.
Source: http://news.yahoo.com/angolan-crude-oil-sales-outshine-nigerias-2013-135403899.html
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