London — The sweet crude market is turning on its head with heavy sweet crudes like those from Angola trading at small premiums over light sweet crudes from Nigeria.
This trend has gathered pace in recent months as the oil market prepares itself for the January 1 introduction of a 0.5% sulfur cap for marine fuels as mandated by the International Maritime Organization (IMO).
Refiners are seeking to buy more heavy/medium sweet crudes to adhere to these stricter shipping rules, and sweet crudes, especially those from Angola and other parts of West Africa, are seeing a demand boom.
Nigerian crudes are largely low in sulfur (sweet) and yield a generous amount of diesel, jet fuel and gasoline (light), which are the profit-making products for global refineries, and would generally trade at significant premiums over light crude benchmarks.
Angola, on the other hand, produces almost 1.40 million b/d of medium and heavy but sweet crude oil -- oil that is low in sulfur, but, when refined, yields a lot of fuel oil and gasoil.
This barrel has also emerged as a must-buy crude for those refiners that want to produce marine gasoil due to its fuel oil yields that are very low in sulfur.
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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 overhyped or will there be a spike [in diesel]?"
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