The differentials for Nigerian crude oil grades against benchmark Dated Brent have been steadily dropping over the past two weeks as November cargoes fail to attract major buyers, with more than a third of the month's program still unsold, even as December's programs begin to be released.
Flagship Nigerian grade Qua Iboe was assessed by Platts on Thursday at a premium to Dated Brent of $0.65/b, the lowest since July 13.
Levels have dropped 60 cents from highs at the start of October, when the grade was assessed at Dated Brent plus $1.25/b.
Premium Nigerian grades Bonny Light and Forcados have also dropped 50 cents since the beginning of October.
Bonny Light is currently assessed at Dated Brent plus $0.60/b and Forcados also at Dated Brent plus $0.60/b, the lowest since mid-August.
The brief parity of all three grades at the end of last week has since disappeared, said traders, with Qua Iboe retaining a small premium over the other two.
Differentials for Bonga grade have dropped 50 cents since the beginning of October to Dated Brent plus $0.50/b, while Escravos has dipped 40 cents to Dated Brent flat.
Other Platts assessed Nigerian grades Brass River, Erha, Usan, Agbami and Akpo have also had narrowing differentials.
The falls can be attributed to a number of factors: pressure from high freight rates, dampened European demand due to low refinery margins and competing Mediterranean grades.
"As forward margins are on the way down and freight is holding at strong levels, European buyers are sitting on their hands," one crude trader said.
Trading sources said West African crude could begin to price into Europe this week, but falling differentials for competing light, sweet Mediterranean grades such as CPC and Azeri have it made it more difficult.
"The Med fall makes it even worse for residual light WAF," said one trader of West African crude.
Additionally, in Europe, Urals discounts have grown to their widest in more than 16 months as a prolonged period of stagnant arbitrage and an overly long sour crude market in Europe made it increasingly difficult to clear volumes.
As a result, a number of European refineries are switching refining slates to heavier, sourer grades.
India, which normally takes numerous monthly Nigerian cargoes, has also finished its buying for November, with the ongoing issue over the required "letter of comfort" for ships loading from Nigeria still deterring some Indian buyers from loading additional crude.
Despite some talk in the market about the US Gulf Coast and East Coast being potential buyers, traders in Europe said stronger buying interest has yet to be seen from the US.
However, as differentials continue to sink and compare favorably with domestic light sweet crudes, the US becomes a more likely region for remaining November barrels.
"There will be interest coming from the US... WTI/Brent is well priced and there seems to be less supply of local sweet grades in the US," a crude trader said.
