Macro

Nigeria’s Dangote Mega-Refinery Imports 16M Barrels of US Crude in 2023

Dangote Refinery Imports Over 16 Million Barrels of US Crude, Plans for Additional 11 Million Barrels

By Max Weldon

7/11, 07:57 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
article-main-img

Key Takeaway

  • Nigeria's Dangote refinery has imported over 16 million barrels of US West Texas Intermediate crude this year, with inflows set to rise.
  • The refinery took in 41 million barrels of feedstock in H1 2023, with a quarter from the US, indicating a shift towards American supply.
  • Recent purchases include 5 million barrels for August and September delivery, plus an additional tender for 6 million more barrels.

Dangote Refinery's US Crude Surge

Nigeria's Dangote mega-refinery has significantly increased its intake of US crude oil, bringing in over 16 million barrels of West Texas Intermediate (WTI) crude so far this year, according to data compiled by Bloomberg. This trend is set to continue, with Dangote purchasing an additional 5 million barrels of WTI Midland for delivery in the coming months and initiating a tender process for another 6 million barrels for September. The refinery, located near Lagos, has been primarily running on local crude supplies but has increasingly turned to American feedstock due to competitive pricing and availability.

The refinery took in more than 41 million barrels of feedstock in the first half of the year, with about a quarter of that being American supply. This shift towards US crude is likely driven by the need to secure spare barrels at competitive prices, as Nigeria competes with suppliers from the North Sea, Mediterranean, and North Africa for crude sales in Europe and Asia. The Dangote refinery aims to help Nigeria reduce its dependence on foreign fuel supplies, and the increased intake of US crude is a strategic move to ensure a steady and cost-effective supply of feedstock.

Oil Prices and US Inventory Decline

Oil prices have been on the rise, with Brent crude advancing above $85 a barrel and WTI for August delivery rising to $82.34 a barrel. This increase comes as US crude inventories fell by 3.4 million barrels last week, according to data released on Wednesday. The decline in stockpiles, coupled with rising consumption of jet fuel and gasoline during the summer travel season, has contributed to the bullish sentiment in the oil market.

The International Energy Agency (IEA) has projected that global oil demand growth will be less than 1 million barrels a day this year, citing that China's post-Covid rebound has run its course. Despite this bearish outlook, the reduction in US crude inventories has provided a counterbalance, supporting higher oil prices. "The big event for oil is, like other markets, the US CPI that could pave the way for a September cut supporting USD-denominated commodities like oil," said Arne Lohmann Rasmussen, Head of Research at A/S Global Risk Management.

Market Dynamics and Future Outlook

The oil market has been supported by OPEC+ supply cutbacks, although some members of the cartel have been pumping above agreed limits. Key producer Russia made noticeable reductions in June, contributing to the overall supply constraints. The recent rally in oil prices has been accompanied by a decline in volatility, with Brent's implied volatility near its lowest level in about six years.

US gasoline demand has also shown signs of strengthening, with the four-week seasonal average rising to the highest since 2021. Inventories of motor fuel have fallen to the lowest level since May, further supporting the bullish sentiment. "This summer was expected to be a pretty good driving season, and it seems to be playing out that way," said Brian Kessens, a managing director at Tortoise Capital Advisors LLC.

In China, the world's largest oil importer, economic challenges persist, with deflationary pressures and diminished appetite for crude from some refiners. However, the overall market sentiment remains positive, driven by expectations of looser US monetary policy and continued supply constraints from OPEC+.