Year-end issues has created stalemate for Nigerian crude Free On Board (FOB) market as more than 20 crude cargoes (about 950,000 barrels) still remained unsold from Nigeria’s December loading programme as a result of lack of demand, a trader said.
Nigerian cargoes typically sell on a FOB basis, but year-end issues in the US mean December trades differently from other months.
This year there is also less demand for light sweet grades, with refinery margins down, traders said.
“There is a vacuum for these barrels, they are not trading now,” said a trader. “I don’t see the FOB value well supported, now the window [for FOB] trading is over.”
Unsold cargoes will instead travel to the US Gulf Coast and be sold on a delivered basis, arriving in the new year. By arriving in January, US companies are able to buy December-loading Nigerian cargoes without counting them as physical stocks on their 2008 inventories.
Low freight rates and the widening spread between December Brent and January WTI futures mean the arbitrage to the US Gulf coast is open on paper. “The light sweet grades compete with LLS [Light Louisiana Sweet crude], freight is cheap and the spread [between Brent and WTI] is high, and they sell at a discount to locally available grades,” a trader said.
There is a 20- to 21-day turnaround for ships to load in Nigeria, travel to the US Gulf coast and then wait for the cargo to be offloaded. “Even cargoes loading in Nigeria on December 10 will have to be sold on a delivered basis,” a trader said.