Shale boom drives price of Nigeria’s flagship crude to decade low

The shale boom, which has reduced U.S. dependence on imports, has sustained its pangs on Nigeria’s crude oil trade, as Africa’s biggest oil producer slashed the pricing for its flagship grade to the lowest in a decade.

Specifically, the country will sell July supplies of its Bonny Light crude at 23 cents more than Dated Brent, which is the smallest differential since 2005, against a 50 cent premium in June and $2.55 a year earlier recorded.

Surging output from U.S. shale formations contributed to a market glut that drove crude down almost 50 per cent last year, roiling global markets as producer nations lost revenue and foreign-exchange reserves.

While oil has pared losses this year, prices are still below what some producers, including Nigeria and other OPEC members need to balance their budgets, data from the International Monetary Fund and ING Bank NV showed.

Market analysts explained that Nigeria has no choice but to cut the price differential to fight for market share moreso as the U.S. was its key oil buyer in the past but imports have been shrinking with more shale output in an already oversupplied market.

The slump in prices last year forced Nigeria, which relies on oil for about 70 per cent of its income, to scale back budgeted spending and devalue the naira currency.

The nation’s former finance minister, Ngozi Okonjo-Iweala, said earlier this month that her successor will face a “difficult” year because of plunging crude revenues. Brent crude fell by 69 cents to $63.57 on Friday on the London-based ICE Futures Europe exchange.

Horizontal drilling and hydraulic fracturing, or fracking, that unlocked supplies in shale formations in North Dakota, Texas and other states has boosted U.S. output to the highest in more than three decades, forcing overseas producers, whose exports to the world’s biggest oil consumer are shrinking, to find new markets for their crude.

The U.S. has bought an average 30,000 barrels a day of Nigerian crude this year, data from the Energy Department showed.

It shipped almost one million barrels a day from the African nation in 2010, according to the data. With sliding sales volume to U.S., Nigeria is vying with OPEC members, including Saudi Arabia and Kuwait for customers in Asia, which the Paris-based International Energy Agency predicted would account for about a quarter of global oil demand this year.

OPEC’s 12 nations pumped more than their self-imposed limit of 30 million barrels a day for the past 12 months, as they seek to defend market share. Saudi Arabia, the group’s biggest producer, has 1.5 million to two million barrels a day of spare output capacity and is ready to increase production if demand rises. , its Oil Minister, Ali al-Naimi said Thursday.