The return of Chinese and Indian appetite for Nigeria's and other West African countries' crude oil grades could to some extent play a critical role in determining the price of the commodity in 2023, an Argus report has shown.
Argus publishes business reports, market assessments and special studies and provides price assessments, business intelligence, and market data for the global energy industry.
The report stated that Nigeria's attempts to bolster its flagging crude output have been helped by the return of several production and export facilities in recent weeks, notably the resumption of operations at the Forcados terminal.
Latest figures from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), it said, put crude output at 1.19 million bpd last month, up from 1.01 million bpd in October and 940,000 bpd in September.
A major asset that has helped boost production in Nigeria, Argus said, is output from the Bonga crude grade which also increased, to just under 69,000 bpd in November from October's 61,000 bpd, although it fell short of September's 106,000 bpd.
"But the key question for West African crude prices in 2023 will be demand, especially the return of Chinese and Indian demand, in light of recent geopolitical events," it added.
It noted that Europe boosted purchases of West African crude by around 300,000 bpd between June and August, as it aimed to overcome its reliance on Russian crude following the war in Ukraine.
But it noted that such demand diminished in the second part of the year, as ample flows from the Americas created a supply glut in the European market, further compounded by stable Libyan production.
In Asia-Pacific, demand from China and India, historically the biggest single buyers of Angolan and Nigerian crude, respectively, has also been subdued in recent months, it pointed out.
"This was partly the result of strict zero Covid policies in China, which have led to an economic slowdown in the country, but also increased buying from both countries of heavily discounted Russian supplies.
"China's gradual reopening this month may well translate into renewed demand for West African grades, but the long-term outlook is uncertain. Mobility rose in China in the first half of December, and the country's construction sector is readying itself to ramp up operations in March," the report stressed.
Oil firms, it pointed out, have stepped up crude purchasing, with at least 16.4 million barrels changing hands between 1-7 December, and Angolan grades having shown initials signs of a comeback.
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Chinese refiners benefit the depressed value of unwanted sweet crude redirected from an amply supplied European market, in addition to favourable arbitrage economics and lower freight rates, it said.
"But it remains to be seen whether interest from China will be stable over the long term. Although China has unwound its stringent Covid-19 restriction policies faster than anticipated in recent weeks, infection rates in the capital Beijing are on the rise again.
"New lockdowns cannot be ruled out. In November, exports of West African grades to China fell by almost 15 per cent from October to 709,000 bpd, as strict regulations and travel curbs were in place," it noted.
As for the outlook for India's demand for West African grades, it explained that though also uncertain, imports of Angolan crude rose to 204,000 bpd in November, a three-year high.
Similarly to their Chinese counterparts, Indian buyers can benefit from the lower spot differentials of crude from West Africa, it noted, saying that India, which has emerged as a significant buyer of discounted Russian crude since Europe started moving away from it, is likely to continue in that trajectory.
"There are several indications that Moscow might come up with mechanisms to overcome a dependence on EU and UK-based chartering and insurance services, which, since 5 December can only be provided if a $60/barrels is adhered to.
"The all-important, lingering question is whether Russian crude production will ultimately take a hit as a result of western sanctions, which could usher in a period of renewed and stable interest in west African grades from Asia-Pacific," the report said.
