Nigeria produces a maximum 2.5 million barrels of crude oil per day. According to the U.S Energy Information Administration, Nigerian exports of crude and petroleum products to the United States plunged from 36.4 million barrels in July 2010 to just 5.6 million barrels in January 2019.
One oil seller told Reuters that "Nigerian crude has taken a beating for the last 10 years ever since the U.S. scaled back buying”.
Nigeria’s crude oil variants—Bonny Light and Qua Iboe—used to be the toast of the U.S market and elsewhere. But not anymore.
Shale oil has displaced Nigerian crude
The United States now has enough oil to saturate its domestic market and to export, thanks to fracking technology.
Fracking is the process of injecting liquid into layers of rocks at high pressure in order to extract oil and gas.
Fracking produces Shale oil.
Shale oil is a high-quality crude oil variant that is now proving enough competition for the traditional crude oil drilled from beneath the soil.
The U.S is now the number one oil producer in the world because of Shale oil.
Reuters writes that “sellers of Nigerian crude are still learning to live with the surge in U.S. shale output, which has turned the United States into the world's top crude producer and dampened demand for imports in what had been a reliable market for Nigeria”.
Buyers are turning their backs on Nigerian crude because its more expensive
In the international market, Nigerian crude is still priced higher because of its quality. But buyers are not so keen on that quality anymore, it appears.
Sellers of Bonny Light and Qua Iboe crude are offering at and above a premium of $2.00 a barrel compared to dated Brent, the benchmark North Sea crude, according to Reuters.
"We have many options that mean Nigerian won't work for us at these prices," another trader told Reuters, adding that in addition to U.S. oil, European refiners could turn to North Sea and Caspian Pipeline Consortium (CPC) crudes.
CPC oil "costs us 50 cents less a barrel compared to the prices being asked for Nigerian, given the freight costs and market structure," he added.
India and Indonesia are saving Nigerias blushes
U.S Shale is also beating Nigeria’s oil in the European market.
After Washington lifted a four-decade ban on exports of U.S. oil in 2015, oil shipments to Europe hit an all-time high of 25 million barrels in March 2019 from just 2 million barrels in February 2016, according to data from Refinitiv Eikon.
Nigeria can take some solace in the fact that India and Indonesia still fancy its oil.
"It's only because India's economy has been growing, and to a lesser extent Indonesia, that there remains decent demand for Nigerian crude. Without those two countries, the European buyers would have dragged the market much lower," one seller said.
However, U.S Shale is finding its way to the Indian and Indonesian markets as well.
Reuters writes that; “U.S. oil is also heading to India, where it is increasingly competing with Nigerian crude. Indian Oil Corp, the country's top refiner, signed its first annual deal to buy U.S. oil in February, paying about $1.5 billion for 60,000 barrels a day up to March 2020”.
Another trader source told Reuters that "Nigerian oil is facing stiff competition almost everywhere. Sooner or later, Nigerian oil is going to need to expand into new markets."
Even though successive Nigerian leaders have expressed their desire to diversify the nation’s economy, the oil sector still accounts for about 90 percent of Nigeria’s total exports, 87.7 percent of foreign exchange and a mere 9.61 percent of Gross Domestic Product (GDP).
Nigeria still exports a chunk of the crude oil it produces, for refining, because local refineries have been left comatose for decades.