Middle Eastern oil producers are offering steep discounts of up to $37 per barrel to defend market share amid soaring tanker freight rates and weakening demand, even as Nigeria rejects price control.
Nigeria’s Finance Minister, Taiwo Oyedele, has repeatedly argued that the country lacks sufficient crude oil to supply domestic refineries at discounted prices.
According to a report by Kpler, Iraq has reportedly offered some crude cargoes at discounts of up to $37 per barrel against official selling prices, as Saudi Arabia and other regional producers compete for buyers facing rising transportation costs and geopolitical risks.
The development shows the pressure on oil producers to retain customers as the cost of shipping crude rises and Asian refiners become reluctant to rebuild inventories.
However, Nigeria’s position on discounted crude has centred on the availability of oil for domestic refiners and the potential cost to public revenue of selling crude below market prices.
As the US-Iran conflict triggered a surge in oil prices from a low of less than $70 to over $110, there were calls that the Federal Government should design a price for crude meant for local refineries to lower petrol prices. Former Vice President Atiku Abubakar, who is the presidential candidate of the African Democratic Congress, and other Nigerians have advocated what they called ‘production subsidy’.
The plan, according to them, is to sell petrol at a discounted rate to local refiners, who will sell the refined products to Nigerians at cheaper rates.
However, Oyedele criticised calls for the government to supply crude to local refineries at discounted prices.
“So the people that are saying, ‘We’ll discount it, we’ll do the cost of production,’ don’t know what they’re talking about. We don’t have enough to service Dangote. Dangote imports crude. And I just want us to establish that fact.
“That’s why, when Mr President introduced the naira-for-crude, it was meant to help us gain some stability. And it has worked, but we don’t have enough quantity to give as of yet,” he said.
Oyedele explained that Nigeria’s total crude oil production did not represent the volume available to the Federal Government, as part of the output was allocated to oil companies under production-sharing contracts and joint ventures.
He said production costs and royalties were deducted before the government could determine the volume of crude available for sale or allocation to domestic refiners.
According to him, Nigeria produced about 1.8 million barrels of crude oil per day but had less than 700,000 barrels freely available for allocation to buyers, including the Dangote Refinery, which requires about 700,000 barrels daily to operate at full capacity.
The government’s position comes as Iraq offers increasingly aggressive discounts to keep its crude moving despite the risks and costs associated with shipping through the Middle East Gulf.
According to a report by Bloomberg published by Rigzone, Iraq’s State Oil Marketing Organisation offered October-loading Basrah Medium crude at a discount of $34.50 per barrel and Basrah Heavy at $37 per barrel below regional benchmarks. The discounts were higher than those offered in August and September, when reductions were below $30 per barrel.