Brent crude oil prices rose to its highest since October 2014 after it hit $88.4 on Tuesday as drone attacks on targets in the United Arab Emirates stoked fears across the region.
At $88 oil prices are firmly back to the pre-Buhari regime when the economy was robust and selling north of 1.8 million barrels per day.
Incidentally, this marked the end of an oil boom era for Nigeria and the start of a protracted period of a fall in oil revenues, multiple devaluations and recessions and an accumulation of debt not seen since the return to democracy in 1999.
While the current oil price increases may not deliver the same sort of revenues recorded by Nigeria in 2014, the country still stands to benefit and will cash in on its oil exports as the price of the black liquid as rallied for the 4th consecutive weeks.
Data from the central bank reveal Nigeria earned about $11.3 billion from crude oil and gas exports in the third quarter of 2021 when oil prices averaged $75 per barrel.
Oil bulls have had a good start to the year as the price of the black liquid has rallied, despite the surging cases of the COVID-19 omicron variant, particularly in China and in the United States. This is also supported by easing fears about the Omicron variant’s impact on demand.
A recent Goldman Sachs report projects an oil price of $100 per barrel by the end of this year and $105 per barrel in 2023 when the Buhari administration is expected to hand over to a newly elected leadership.
According to the OPEC December 2021 monthly report, Nigeria, alongside Iraq, Saudi Arabia and Venezuela boosted its oil output between October and November. The nation average crude oil production increased by 3.83% from 1.228 million bp/d to 1.275 million bp/d. Although there is an increase, the country still struggles to meet up with its OPEC quota of 1.66 million bp/d.
The report also spoke about OECD (Organization for Economic Co-operation and Development) Europe crude imports and how it remained strong during the period. It states that, “in terms of source of imports, Iraq took over the spot of top supplier from outside the region, with a share of 9%. Kazakhstan was in second place with 7%, followed by Nigeria in with 6.6%.”
The report stated that the current double-digit inflation and labour market pressures have put a dark spell on Nigeria’s economic outlook. It reads, “The near-term outlook of Nigeria economy is hindered by the elevated inflationary and labour market pressures.” This is evident as Nigeria’s inflation rate grew to 15.63% in December 2021 from 15.4% in November. This increase put an end to a decline that has been going on for 8 months.
Olumide Adesina, an analyst at Quantum Economics, spoke about why Nigeria is not meeting its OPEC quota. He has this to say, “Nigeria and other members of the Organization of Petroleum Exporting Countries (OPEC) have not been able to pump enough crude oil, as a result, the group will not be able to meet its production targets for December 2021.
“Despite having a target of 1.67 million barrels per day for December, Africa’s leading oil nation can produce only 1.44 million barrels per day in December and 1.49 million barrels per day in November. The quest for over 2 million barrels per day would remain an illusion unless the Petroleum Industry Law is implemented quickly.
“Until we are able to show the world we are serious about attracting investment, only then will the world take us seriously. An uncertain environment will not attract investors. Investments are necessary to boost reserves and production. These investments will not be made in the current economic climate.
“Additionally, pipelines have been vandalized by saboteurs. In addition, oil bunkering issues are largely hindering production in the country. What are the chances of Nigeria meeting its OPEC commitments with all these disgraceful activities?”
Opeoluwa Dapo-Thomas, an international markets analyst also gave his point of view. He stated, “So the issue with Nigeria’s production lapses or quota deficit is a technical one. In the last two years, we have been compelled to reduce supply to comply with OPEC+ requirements and the way “reducing supply” works is not how you think it works. It’s not a tap that you just close and reopen when you have more license to produce. It’s more technical than that.
“Restarting reservoirs is a pretty challenging process especially as some of our infrastructures are antiquated. Our key Nigerian crudes, Forcados, Bonny Light, Escravos and Qua Iboe have faced operational challenges in recent memory. If I can add, do we still have a threat of militancy and vandalism? I’ll be lying if I say the threats have completely evaporated. These are the issues.”
The oil market has started the week bullish as the brent is trading $88.6 per barrel while the WTI is trading $86.9 per barrel both are up 0.33% and 0.38% respectively as of the time of this writing. Nigeria is set to gain big on oil with its current price but the production output will prove to be a problem for the oil-dependent nation if nothing is down about it.