A recent report highlights a notable trend: European oil refineries are significantly increasing their demand for two pivotal West African crude oil grades, namely the Forcados and Egina blends. This surge in demand follows closely on the heels of both a spike in diesel prices and disruptions to imported shipments from the Middle East.
This heightened demand has led to a notable uptick in the price of these West African crude grades, with recent offerings commanding premiums exceeding $5 and $7 per barrel above the international benchmark, Brent Crude oil. Just last month, these premiums stood at approximately $4 and $6 respectively, signaling a significant escalation.
The report attributes this price surge to several factors, including the rich diesel content of the two grades and the logistical challenges faced by oil tankers bound for Europe from the Middle East. Delays caused by attacks from Houthi militants on ships in the Red Sea have forced European refiners to seek alternative sources of crude closer to home. In essence, the turmoil in shipping routes has compelled European refiners to pivot their crude oil sourcing strategies, leading to increased reliance on the West African-producing nation- Nigeria.
The current surge in demand from Europe will further trigger a shortage of supply and scarcity of crude oil products within Nigeria, as the country prioritises exportation over internal consumption to bolster foreign exchange revenue. Consequently, oil marketers have struggled to maintain a uniform pump price nationwide. As of January 1, 2024, fuel prices in Nigeria ranged between N568 per litre to N700 per litre. However, at the time of this report, certain independent markets in the northern regions have escalated pump prices to surpass N750 per litre.
What you should know about the Forcados and Egina blends
The Forcados and Egina crude oil blends originate from Rivers State, Nigeria, a nation where crude oil derivatives such as diesel and petroleum often face scarcity, leading to frequent price surges. The Forcados blend, characterized by its light and sweet composition (with sulfur content below 0.6%), boasts a high gasoline and distillate mix. It is classified as a high-grade crude oil, predominantly extracted from the Niger Delta Basin, with a daily production capacity of approximately 200,000 barrels. Its low sulfur level of 0.29% and API Gravity of 29.7 contribute to its significant value in the international market.
In contrast, the Egina blend, while also sweet (with 0.17% sulfur), falls into the medium-grade category (API 27.30), indicating a substantial gasoil and diesel content. This feature rendered it particularly sought after in anticipation of the International Maritime Organization’s sulfur cap, of January 1, 2020. Since the commencement of Egina exports in February 2019, there has been widespread distribution to 23 countries, showcasing its diverse customer base. Key customers include France, Italy, the Netherlands, India, Singapore, and Israel, underscoring the blend’s global appeal and market penetration.
On the evening of July 12, 2023, the exportation of the Forcados grade, which had been slated for a shipment of 220,000 barrels per day (bpd), came to an abrupt halt following the sighting of fumes near a single buoy mooring—a floating loading facility—where oil was being loaded onto a vessel. This suspension of Forcados loadings played a significant role in Nigeria losing its position as Africa’s foremost oil producer, relegating it to second place behind Angola. Additionally, this event contributed to a decline in OPEC crude oil output during July. But the nation reclaimed its spot after supplies of the Forcados grade commenced the following month.
