Nigeria’s state oil company is to alter how its crude cargoes are priced from next month, a step that traders said may make handling the nation’s barrels more risky.
Nigerian National Petroleum Co. will start pricing its supplies against the monthly average of Dated Brent, the physical-crude benchmark, a company circular seen by Bloomberg News shows.
Up until now, pricing has been based on Dated Brent’s average settlement in the five days after loading.
Traders said the switch will make the cargoes more prone to the kind of volatility that besets wider oil markets.
The new approach may require increased use of hedging because of the less-precise timeframe that’ll be applied to cargo pricing, they said.
An NNPC spokesman didn’t immediately respond to requests for comment. The circular didn’t give a reason for the decision.
Knowing when to hedge can also be challenging, since loadings are sometimes deferred from late in the month to early the following month.
NNPC plans to stick with initial nominated loading dates for pricing purposes, according to the circular.
The traders said it will be more difficult to compare the price of NNPC’s shipments to Europe with cargoes from the Mediterranean and North Sea, as well as WTI Midland — most of which are priced using the five-day system. That may make the nation’s barrels less competitive, they said.
A month ago, Nigeria launched a new crude grade, Nembe, in an attempt to undo the damage from long-running thefts and attacks in the country’s Niger Delta region.
The new Nembe grade is expected to add 1.9 million barrels of crude oil exports to Nigeria’s portfolio monthly, according to an NNPC statement, with first cargoes already sold in October for export to Western Europe.
As a crude grade, Nembe is similar to Nigeria’s low-sulfur, distillate-rich grades, which go for a premium to Brent crude and are suitable for European refiners.
According to the NNPC, “the Nembe crude oil grade also has a low sulphur content and low carbon footprint due to flare gas elimination, fitting perfectly into the required spec of major buyers in Europe.”
Nembe crude has previously been produced, though not as a separate grade until now. In previous years, Nembe went through the Nembe Creek Trunk Line along with Nigeria’s Bonny Light grade, but attacks on pipelines in the Niger Delta sidelined production.
