China beats US to Africa’s oil

Although the US is still an important buyer of Middle Africa’s crude oil, China has emerged as the largest buyer in 2012, accounting for close to 60% of all Asian imports from the region, research by the Ecobank Group has shown.

 Middle Africa crude includes oil produced by countries in sub-Saharan Africa such as Nigeria, Angola, Cameroon, Chad, the Republic of the Congo, Equatorial Guinea, Gabon, South Sudan, and Ghana.

 The report, released on October 23, attributes the shift to a “large increase in consumption by China” on the one hand, and the fact that the US is on course to cut its oil demand by 1.5 million barrels per day (mbpd) by 2013, due to rising domestic production.

 “Accelerated development programmes in Texas and North Dakota, which account for 40% of crude production in the US, saw oil production leap 12% in 2011,” the report said.

After accounting for about 45% of all crude oil imports out of Middle Africa in 2005, imports to the US have since declined to around 23%.

Asian refiners, the report noted, have developed a taste for West Africa’s light sweet crude grades, raising their demand for West African crude grades from an annual average of 1.57 million barrels per day (mbpd) in 2011 to 1.76 mbpd in 2012, a 12% increase.

 The dynamics in West Africa, with its newly-emerging oil countries like Ghana, Liberia and Sierra Leone appear to be no different.

 In Ghana, reports say that China’s largest oil trading firm, UNIPEC, has taken over the marketing of government’s share of crude oil from the Jubilee Field as part of conditions covering the US$3billion oil-backed Chinese loan the country has contracted.

But China is not the only Asian giant with a keen appetite for Africa’s oil. India and the entire Asia Pacific region have seen large increases in consumption of the region’s oil, according to the report.

 With Asia’s evolving role as a major trading partner for Middle Africa’s oil, the economic outlook for Asia will be critical in determining the direction of crude oil prices and the foreign exchange earnings of most of the region’s exporters, it said.

 “A key focus will be on China and India, which are the largest Asian importers of crude oil. Crude oil imports from these two countries account for 82% of imports by the Asian region.”

 While this is largely a reflection of the financial capacity and industrial demand in these countries, it also represents a potential buyer-concentration risk for Middle Africa as underlined by the downward trend in West African crude exports to Asia in 2012.

 Exports of West African crude started strong in the first quarter of 2012, at an average of 1.84 mbpd, but dropped to an average of 1.69 mbpd by the third quarter.

 Another downside is that if crude oil prices rise too fast, even China is likely to accelerate domestic production to take advantage of economic gains and reduce its imports.

The developments in the US and Asia are important for Middle Africa at two levels, the report said. The first is the fact that revenue from crude oil forms the larger part of export and government revenue in most Middle Africa countries, which in turn has significant influence on the level of economic activity -- including providing capital for infrastructural development.

 Secondly, crude oil sales generate the highest level of foreign exchange for most Middle Africa countries, which affects the strength of their respective currencies.

 The report stated: “All things being equal, the forces of demand and supply in the currency market are expected to maintain this delicate dynamic.

However, this has not been the case with several Middle Africa crude oil exporters as most are also net importers, and thus have a high demand for foreign exchange already.

“Furthermore, more Middle Africa countries are looking to issue Eurobonds to cover their budget deficit, diversify their funding sources and reduce their borrowing costs.

These foreign loans will attract repayment in foreign exchange, increasing the demand for foreign earnings.

Thus, developments in the Asia Pacific region need to be closely monitored and could dictate the outlook on Middle Africa’s crude oil revenue potential.”

 source:b&ft