Nigeria stands a chance to boost its crude oil revenue from a potential windfall emanating from geopolitical conflicts that have seen oil prices soar in recent days.
Recent attacks on Russian refineries by Ukraine and escalating tensions in the Middle East have sparked concerns over crude and fuel supplies, driving prices upwards.
The recent drone strike by Ukraine on a Russian refinery has exacerbated fears of supply disruptions, given Russia’s significant role as one of the world’s top oil producers. Similarly, tensions in the Middle East, particularly between Israel and Iran, raise the specter of further supply interruptions, as Iran, the third-largest producer in OPEC, supports Hamas in Gaza against Israel.
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Moreover, an internal memo from Mexico’s state energy corporation, Pemex, indicates a halt in crude exports, adding to supply concerns. This memo follows reports of declining crude inventories in the United States, the world’s largest oil consumer, indicating tightening supply conditions globally.
This has boosted Nigeria’s position in the global market as its crude oil trade is higher than the federal government’s budget benchmark.
Brass River and Qua Iboe, key Nigerian crude grades, traded close to $92 a barrel, while Brent Crude stood at $89 per barrel on Wednesday. Bonny Light, another Nigerian grade, fetched $91.37 per barrel late Tuesday, underscoring the robust demand for Nigerian crude in the international market.
At the current price of $91.67 per barrel, Nigeria records additional revenue of $13.71 per barrel, surpassing the country’s 2024 budget benchmark of $77.96 per barrel. However, despite the surge in oil prices, challenges persist in meeting budgetary targets, particularly the daily production quota of 1.78 million barrels.
While Nigerian oil commands a premium in the market, it faces stiff competition from American suppliers, who have penetrated markets previously dominated by OPEC countries. Rising US oil production, coupled with declining output from OPEC and Russia, underscores the shifting dynamics in the global oil market.
Is this good or bad for Nigeria?
For Nigeria, the rising oil prices present a double-edged sword. With the oil benchmark at $77.96 per barrel, the nation is facing a dilemma as the oil prices rise. Although in May last year, Africa’s largest economy announced that the petrol subsidy is gone, the government is understood to have silently returned to paying subsidies, reportedly paying around N17 billion per day to keep the pump price of petrol not above N670 per liter.
Against this backdrop, analysts have noted that an increase in fuel prices will do more harm than good to the Nigerian treasury. Also, the country is still grappling with the issue of oil theft and infrastructure vandalism that have ensured that oil output is placed around 1.3mbd, below the 1.78mbd budget benchmark.
This shortfall is highly tied to the crisis in the oil-producing Niger Delta region of the country. Though efforts to combat oil theft have intensified, the country still needs to ramp up production to meet budgetary goals. This has extended to the insufficient supply of feedstock for newly commissioned refineries set to come online this year, adding to market anxieties.
Nigeria finding itself at a critical juncture once again has elicited calls for balancing the benefits of soaring oil prices with the challenges of sustaining production and managing fiscal pressures.