For heavy sweet crudes like those from Angola, the sweet crude market turns on its head at limited premiums over light sweet crudes from Nigeria.
This phenomenon has gained momentum in recent months as the oil market is planning to implement a 0.5% sulfur limit for marine fuels as mandated by the International Maritime Organization (IMO) on January 1st.
In order to adhere to these tighter shipping rules, refiners are seeking to buy more heavy / medium sweet crudes, and sweet crudes, especially those from Angola and other parts of West Africa, are seeing a demand boom.
Nigerian crudes are relatively low in sulfur (sweet) and produce a generous amount of diesel, jet fuel and gasoline (clean), which are lucrative commodities for global refineries, and would typically sell at substantial premiums over light crude benchmarks.
On the other hand, Angola produces approximately 1.40 million b / d of medium and heavy but light crude oil, which is low in sulfur but produces a lot of fuel oil and gas oil when refined.
Also, this barrel has emerged as a must-buy crude for those refiners who want to produce marine gas oil because of their very low sulfur fuel oil yields.
This oil has generally traded at a discount to Platts Dated Brent, but in recent times prices for some grades have strengthened due to the supply tightness of such crudes globally.
“Overall medium/heavy sweet is still privileged against lighter grades … usually these are the ones that go first,” said a trader active in the West African crude market.
The trader added that as the diesel market starts to strengthen further ahead of IMO 2020, Nigerian light sweet crude differentials could also start to surge.
Since July, Angola’s Dalia has been at a premium over Nigeria’s Bonny Light as refiners scramble to find heavy sweet barrels.
In 2014 and 2018 Angola’s Dalia was at average discount of $4.58/b and $2.20/b to Bonny Light, according to S&P Global Platts data.
This week Dalia has been trading at a premium of $1.30/b over Platts Dated Brent while Bonny Light has been heard at Dated Brent plus $1.05/b, Platts data showed.
“I think a lot of people expected stronger distillate cracks with IMO and this has not materialized as much as expected,” another WAF crude trader said, adding that that had put some pressure on Nigerian crudes. “Has it been over – hyped or will there be a spike [in diesel]?”
