NNPC Shifts Crude Pricing Strategy, Raises Concerns of Increased Market Volatility
The Nigerian National Petroleum Company Limited (NNPC) is set to change the pricing methodology for its crude oil cargoes, a move that traders believe could elevate the risk associated with handling Nigeria’s oil shipments.
According to a circular from the NNPC seen by Bloomberg News, the state-owned company will transition from pricing based on the average settlement of Dated Brent in the five days after loading to using the monthly average of Dated Brent as the benchmark.
Traders have expressed concerns that this shift may expose NNPC’s cargoes to increased market volatility, as the new approach is considered less precise in its timeframe for cargo pricing.
The altered strategy could necessitate a greater reliance on hedging to mitigate risks associated with the changing pricing mechanism.
The NNPC circular did not provide a specific reason for the decision, and a spokesperson for NNPC has not yet responded to requests for comment.
The new methodology intends to maintain the initially nominated loading dates for pricing purposes, even if loadings are deferred from the late part of a month to early the following month.
Traders have pointed out that the adjustment in pricing strategy could make it more challenging to compare the prices of NNPC’s shipments to Europe with cargoes from the Mediterranean, North Sea, and WTI Midland, which predominantly use the existing five-day system.
This potential lack of comparability might affect the competitiveness of Nigeria’s crude oil in the global market.
Source: Vanguard
