FEATURE: Shipping tax claims, WTI-Brazilian blend pile pressure on embattled Nigerian crude

Tanker owners are staying clear of Nigeria after several companies received large back-dated tax bills which, alongside blending of WTI and Brazilian crude at European refineries, is piling pressure on Nigerian crudes.

Shipping and trading sources confirmed to S&P Global Commodity Insights this week that shippers had been hit with demands from Nigeria's Federal Inland Revenue Service for millions of dollars in backdated taxes.

The period covers 2010 to 2019, meaning any shipper that loaded crude, gas or refined products at Nigerian ports during that time could face a penalty, according to reports. The tax authorities are thought to be using historic vessel tracking to enforce the rule.

"Seems few shipowners want to call there hence rates jumped massively. This is pushing FOB cash differentials," said a trading source. "Suez freight to Northwest Europe has gone up circa 70 cents per barrel since the end of last week."

"The freight is really killing differentials," said another trader. "Going into next week with this problem, I think we will see a real effect."

A third trader said it was a struggle to get a vessel "as the shipowners are either rejecting to call in Nigeria or want to add additional clauses to charterparty."

Sources said VLCC rates from West Africa had already been rising as a result of increased fixing activity following rises in crude production in heavyweights Nigeria and Angola. That could see rates surge further if fewer shipowners are operating in the region.

For now, shipping sources said they have not yet seen a significant change for Suezmaxes calling at Nigerian ports specifically, but that could change. "I don't think the rates differ between West African origins yet," a London-based Suezmax shipbroker told S&P Global this week. "Tonnage is still tight and lots of owners will avoid West Africa in general now and just ballast to other areas."

Platts, part of S&P Global Commodity Insights, assessed the Suezmax rate for a 130,000 mt shipment on the West Africa-UK Continent route at $20.72/mt June 15, from $16.12/mt June 6.

Experts believe the move could be an effort by Nigeria's new government under Bola Tinubu -- who has pushed through a raft of major economic reforms in the past fortnight -- to boost revenues. Oil exports are a major source of revenue and foreign exchange for sub-Saharan Africa's biggest economy, but crude production has declined in recent years.

Nigerian lookalike

Rising shipping costs are just the latest threat to Nigerian barrels, which have struggled to find consistent demand in Europe, according to market participants. While heavy West African crudes -- such as Angola's Girassol -- are popular with Asian refiners, Nigerian barrels have traditionally found customers in Europe. However, demand started to sink in March due to French refinery strikes and has failed to recover fully since.

To make matters worse, European refiners have been buying and blending US WTI and sour Brazilian crudes to make a cheaper, lookalike Nigerian grade, traders told S&P Global.

One source said the blend was undercutting the average Nigerian barrel by roughly $2/b.

Platts last assessed Bonny Light at a discount of 40 cents to Dated Brent on June 15. The flagship grade, which has traditionally traded at a premium to the benchmark, hit an $8.20/b premium to Dated Brent in July 2022.

Production woes

Meanwhile, exports of West African crude to Europe have halved from 715,975 b/d in the week commencing May 22 to 392,857 b/d in the week commencing May 29 and 357,143 b/d last week, according to data from S&P Global Commodities at Sea, suggesting sluggish European demand.

These recent issues follow years of sinking production that have prevented Nigeria from hitting its OPEC production quota.

The country has the capacity to produce 2.2 million b/d of oil, but output dipped below 1.3 million b/d for much of 2022 due to rampant oil theft by gangs in the restive Niger Delta, outages in ageing oil fields, insecurity and underinvestment. IOCs have divested from mature fields in the West African country in recent years.

Tinubu ran on a promise of boosting production to 2.5 million b/d.