Commodity trading group Vitol and France’s oil major Total SA have offered out around 11 million barrels of Nigerian crude oil grades for April, Platts reported on Wednesday, citing market sources, in what looks like traders trying to empty storage as shrinking contango and emerging backwardation make storing crude no longer profitable.

While this may point to traders pushing oil out of storage facilities and starting to clear the oversupply held in storage, it is adding an additional supply of Nigerian crude oil grades for April loading programs.

Nigeria’s Qua Iboe and Escravos grades are the main ones being offered out of Saldanha Bay on the southwestern coast of South Africa. This is creating a glut of Nigerian grades for next month’s loading programs that has resulted in Qua Iboe’s offer price dropping by $0.40 a barrel over the past two weeks, according to Platts’ trading sources.

Earlier this month, Vitol group was said to be offering to ship to Europe 4 million barrels of the Qua Iboe grade that it had been storing in facilities in Saldanha Bay.

The recent flattening of the BFOE Contracts for Difference (CFD) curve—with Platts seeing some parts of the eight-week CFD curve emerging in backwardation in the first half of April—has prompted more traders to try to ship crude oil out of storage, because with backwardation, the nearer-term contracts trade at a premium to contracts further forward in the future.

One trader told Platts, commenting on the incentives to ship crude oil out of storage:

“It has been a big theme this year. Anytime we come close to backwardation people begin to unwind their hedges and move oil out of storage.”

The choice to move oil out of South Africa’s Saldanha Bay—whose estimated storage capacity is 40 million-50 million barrels of oil—is not by chance. Saldanha Bay is located between Europe and Asia, and traders can decide where to send oil depending on the prevailing more profitable spreads between the regional grades, Platts notes.

By Tsvetana Paraskova for Oilprice.com

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