Major contracts and Nigerian crude closed lower on Tuesday following Vice President JD Vance’s announcement that negotiations between the US and Iran had advanced and that neither country desired a return to armed conflict.
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“We think we’ve come a long way”, Vance told reporters at a White House press briefing. “We think the Iranians want to reach an agreement,” he added.
Bonny Light, Nigeria’s flagship grade, traded at about $117 per barrel. Donald Trump announced on social media that he was halting a military strike originally set for Tuesday but warned that the United States would resume strikes if no deal reached.
Brent crude futures dropped 82 cents to settle at $111.28 a barrel, still at high levels, and its highest level since May 5th, with WTI reaching its highest level since April 30th.
The Strait of Hormuz, a narrow waterway that sees about one-fifth of the world’s oil and liquefied natural gas supplies pass through it, has effectively been closed due to the conflict in the Middle East, the largest disruption to global oil supply on record, according to the International Energy Agency.
The latest peace proposal from Tehran to the United States would end hostilities everywhere, including Lebanon, and withdraw U.S. forces from regions near Iran.
Additionally, analysts and market sources claim that since the beginning of the war with Iran, Chinese state refiners have cut their output by over a million barrels per day due to weak margins and disruptions in the crude supply.
Chinese state-owned refineries are processing 8.4 million barrels per day (bpd) this month, compared to 8.6 million in April and 9.5 million in March.
This number stands in stark contrast to the approximately 10 million barrels per day that were recorded before the late February attack on Iran by the United States and Israel. Energy-vulnerable nations can now continue to buy Russian oil by sea thanks to a 30-day sanctions waiver extended by US Treasury Secretary Scott Bessent.
Russia’s Ryazan refinery, which makes up almost 5% of the nation’s total refining capacity, shut down after a Ukrainian drone attack last Friday.
Dangote refinery boosts Nigerian energy industry
Nigerian crude oil reflects a competitive physical market where light-sweet West African grades are fetching a higher premium amid changes in domestic production, refining processes, and geopolitics.
The physical spot market has seen strong upward pressure on Nigerian grades, as global refiners have rushed to make up for lost barrels from the Middle East, where conflicts have intensified, and supply has been disrupted.
The ramp-up of the Dangote Petroleum Refinery has permanently evolve Nigeria’s energy industry, as it has already tapped approximately two-thirds of its crude feedstock from domestic Nigerian fields, meaning it will consume more crude internally, leaving less for the traditional export markets of Europe and Asia. Imports of Nigeria’s Premium Motor Spirit (PMS/petrol) fell from 25 million liters per day in January to only 3.7 million liters per day by April.
This has strengthened Nigeria’s external balance, which prompted an S&P sovereign credit upgrade (from B- to B), however, a legal battle over import licensing has caused downstream nervousness, reducing domestic fuel stock cover from 21 days to 17 days.
Nigerian crude remains structurally bullish to stable, according to S&P. Brent averaging $100/barrel for the rest of the year is part of the current sovereign rating models, and as long as Middle Eastern tensions keep Atlantic Basin refiners looking for light, sweet alternatives, the structural premium on Nigerian barrels is likely to continue, even if more output is diverted to satisfy local refining capacity.
