Record West African crude spreads spur recovery in Angolan trade

Price spreads between comparable West African crudes have reached record highs, restoring interest in a previously beleaguered Angolan segment after values soared in adjacent markets.

Spiking European middle distillate cracks in the lead-up to June trading combined with tightening crude supply in the North Sea and Mediterranean has left refiners scrambling for West African crudes to maximize output of diesel and jet fuel.

West Africa has reacted asymmetrically to the emerging market tightness. Nigerian crudes, light to medium sweet and boasting generous yields of scarce middle distillates, soared to all-time highs.

Nigerian Forcados was last assessed by Platts at a $7.30/b premium to Dated Brent, up $4.90/b from the start of the month, according to S&P Global Commodity Insights data.

The subsequent Angolan rally has been less pronounced. With Angola generally supplying heavier crudes yielding higher proportions of gasoil, they struggled to keep pace given less favorable European refining economics.

Europe remains an unusual market for many Angolan grades that have traditionally relied on Chinese buying.

Indeed, Angolan differentials have been under pressure from absent Chinese demand for months as the country grapples with volatile COVID-19 cases. Values had initially showed weakness as early as mid-March, two weeks before the most recent Nigerian decline, leaving them more ground to recoup.

That has produced some of the widest ever spreads between Angolan and Nigerian crudes. Comparing medium sweet grades, Angolan Girassol was last assessed at a $2.00/b premium to Dated Brent, up $1.60/b since the start of the month but still $5.30/b below Nigerian Forcados, its highest ever discount.

In the run-up to June trading a rollover in differentials was widely viewed as the best-case scenario for Angolan crudes as the market stared down a 10 million barrel overhang.

One trader said they would not be surprised if differentials sank as low as a $6.00/b discount to Dated Brent in some heavier grades such as Dalia.

But as light sweet differentials across the Mediterranean and Nigeria surged, European refiners have increasingly sought value in those heavily discounted crudes otherwise stranded by lackluster Asian demand.

"When Nigerian [crudes] traded at plus $7/b [above Dated Brent], $8/b or even $9/b and Angola is still at minus or small positive levels, the spread is so huge some refiners in Europe for sure have come away," one Angolan trader said.

July cargoes

A minimum of six million June-loading barrels have traded to Europe, a second Angolan trader said. Demand was expected to keep pace for July loading.

"Folks that are traditionally not even looking at it [Angolan crude] are probably chasing up for assays," the trader said.

Angola had already recorded 318,000 b/d in European exports through April, its highest level since August 2016, according to Kpler shipping data.

As China looks tied to its zero-COVID policy, it was uncertain when traditional buyers might return in force to the Angolan market. In the meantime, sellers will have to lean on Angola's generous discount to the light sweet complex to land traditionally less favored crudes in Europe.

Sentiment was upbeat for the weeks ahead after the June-loading program cleared significantly better than first expected, rallying differentials across the board.

Looming declines in Nigerian values may slim opportunities for July cargoes, but "the unusual buyers could still be tempted to take a look given they did last month," the second trader said.

"The spread between Angola and Nigeria is still there ... The discount is just not going to be as attractive as it was."