Nigeria is about losing one of its major oil customers, India, as the world’s third-largest oil importer has found a new market in cheap crude oil supplies from Iraq, according to a report yesterday by Reuters.
India oil imports from Iraq increased to a record high for the first time as it bought about 1.32 million barrels per day (bpd) of Iraqi oil in August. This was 29 per cent higher than its August imports in 2018.
Its crude oil imports from Nigeria, Angola, Cameroon and Chad, which are known for its sweet crude also dropped significantly in August by 18.3 per cent which amounts to 764,500 barrels of crude oil drop as its prices rose.
India became Nigeria’s biggest export destination for its crude oil from 2013 after United States made a shift in crude oil demand by turning its attention to shale production.
Statistics from the Observatory of Economic Complexity (OEC), an international trade database tool that visualises data about countries and the products they exchange, showed that from 2008 to 2018, Nigeria earned $96 billion from crude oil exports to India.
However, this oil trade partnership between Nigeria and India is likely to be threatened with Iraq’s cheap oil type called Basra heavy crude, which is sold to India at a lower premium price compared to the grade’s official selling price, OSP, through tenders.
The shift of its biggest oil partner due to the proximity of Iraqi’s crude to India and its cheap prices puts Nigeria’s oil sale in a precarious state. Nigeria depends on proceeds from crude oil that constitutes about 90 per cent of the country’s total revenue to finance its budget.
“In the spot market, Saudi and UAE (United Arab Emirates) barrels are not available while Iraqi oil was easily available in spot markets at attractive prices, prompting refiners to maximise purchases of Iraqi oil,” the report said.
Organisation of Petroleum Exporting Countries (OPEC), and its allies have agreed to cut production by 1.2 million barrels per day through to the end of the first quarter of 2020, but US sanctions on Iran and Venezuela have decreased crude oil supplies.
This action has enabled Iraq, OPEC’s number six oil producer, to gain its crude oil market share in India.
Currently, Iraq’s crude oil output is at 4.8 million, bpd, above OPEC’s target of 4.5 million bpd, while Saudi Arabia has been producing below the targets due to attacks on its oil installations.
Indian refiners are set to maximise production of very low-sulphur fuel oil (VLSFO) to supply ships from 2020 in compliance with January 1, 2019 deadline by International Maritime Organisation (IMO) to ban ships from using fuel with more than 0.5 per cent sulphur to reduce air pollution.
“Some complex Indian refiners like Reliance can even produce very low-sulphur fuel oil with high-sulphur oil like Basra Heavy,” the report stated.
Indian oil-based industries doubled Iraqi oil imports in August from the same month last year to about 1.8 million tonnes, the report hinted.
This indicates that India’s crude oil demand from Nigeria is expected to reduce to accommodate Iraqi’s crude oil supplies.
India is reputed to be the world’s third-biggest crude importer, meeting 83 per cent of its demand from imports from the Middle East and other countries such as Nigeria, Mexico, Venezuela and the US.