COVER
FEATURE
Connecting Africa to the
world: Africa’s base oils
markets in context
A
By James Gooder
frica is the world’s fastest
growing market for oil products,
and has become a focal point for
traders looking to identify new
outlets for a surplus of production. At this year’s
first ever Argus Africa Base Oil and Lubricants
event in Johannesburg, I discussed some of the
trends affecting global markets and mused on
how these might have a bearing on Africa.
Bigger picture
The biggest story in oil markets in recent
years has been the huge boost to US crude
oil production made possible by advances in
drilling techniques that have made oil and gas
trapped in shale rock formations accessible on
a commercial scale.
US crude production has swelled from
around 5.5mn b/d just four years ago, to over
9.5mn b/d now. This has made North America
increasingly self-sufficient in energy – a major
reverse after years of being the world’s largest
net importer of oil. Africa’s largest oil producing
nations, Nigeria, Angola and Algeria, have had
to redirect their exports to the growing markets
in the east, particularly India and China.
Meanwhile, the group of oil exporting
nations, Opec, has chosen to pursue market
share rather than higher prices, which has
put pressure on the price of crude, which has
plummeted from levels around $110/bl for the
North Sea Dated benchmark in mid-2014, to
below $50/bl today. Opec production of around
31.5mn b/d is well above the group’s official
output target of 30mn b/d.
A large surplus of crude oil has built up in
storage and the market is also bracing itself for
renewed flows from Iran, if sanctions are lifted
at the end of this year. The IEA forecasts that the
crude market will be oversupplied by around
2.1mn b/d in 2015.
Abundant crude, coupled with recovering
products markets, have boosted refining
margins in much of the world, even in
Europe where overcapacity has weighed on
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the profitability of refining for several years.
European refiners have been exploiting this
new-found profitability by churning out as
much product as possible in the first half of this
year, even grades where Europe is oversupplied
such as gasoline.
Expensive airline fares – where ticket prices
were locked in at higher fuel prices – have led
many American holidaymakers to drive instead
of fly to their vacation destinations, which in
turn has pushed up gasoline demand, giving an
outlet for European oversupply.
And despite recent disruptions caused by
Nigerian distributors’ strike action, West Africa
remains an important destination for European
gasoline and other refined products, as the
region’s refineries are unable to meet regional
demand.
Africa in focus
Three factors are driving African demand
for oil products: population growth, economic
development and urbanisation. In concert these
fundamental African trends are boosting car
September 2015 • | Lubezine Magazine