The drop in fuel imports by Nigeria and other countries in West Africa on the back of economic slowdown are taking a toll on refiners in Europe, the Organisation of Petroleum Exporting Countries has said.
European refineries currently supply a large portion of petroleum products consumed in the country and other West African countries.
Nigeria, Africa’s largest oil producer, relies largely on importation for petrol and other refined products as its refineries have remained in a state of disrepair for many years.
The refineries, located in Port Harcourt, Kaduna and Warri, have a combined installed capacity of 445,000 barrels per day but have continued to operate far below the installed capacity.
“European refiners are challenged by petrol and diesel oversupply due to declining fuel import requirements from West Africa and Latin America, as well as stronger competition from the US refiners,” OPEC said in a new report.
According to the group, product markets in Asia are expected to remain weak during the summer months, as the impact of COVID-19 will affect oil demand.
“Despite run cuts of nearly 20-30 per cent in most plants, gasoline (petrol) stocks are on the rise in traditional US export markets, such as Latin America, which are backing out of delivery deals,” it said.
OPEC said this would further pressure petrol markets ahead of the driving season, adding that the US refiners were already reporting heavy losses in first quarter 2020 returns.
It said, “The oil market is currently undergoing historic shock that is abrupt, extreme and at global scale. The typical seasonal low for refiners, at the end of the first quarter of each year, is being exacerbated by unprecedented destruction in oil demand due to the global spread of COVID-19.
“In fact, oil demand in Q2 2020 has been revised downward by almost 12 million bpd year-on-year, with 60 per cent of the loss coming from transportation fuels, primarily petrol and jet fuel.”
The report noted that the virus containment measures that were mandated and/or implemented by various governments had included far-reaching lockdowns, travel restrictions and social distancing exigencies, currently affecting over 40 per cent of the world’s population.
“So far, these restrictions have led to tumbling fuel consumption, amid product inventory builds, severely damaging jet fuel markets and driving petrol margins into negative territory.”
It noted that the physical crude oil market had been hit hard by oil supply glut and accumulation of unsold cargoes.
“Holders of prompt cargoes struggled to sell their crude amid a steep decline in oil demand, particularly for transportation fuels such as jet fuel and petrol, and there were significant cuts in refinery runs in almost all hubs. Sellers of crude oil were heavily discounting their crudes to find buyers,” OPEC said.