Nigeria may face critical economic challenges, as some stakeholders are projecting a $100 per barrel oil price following the move by the Organisation of Petroleum Exporting Countries (OPEC) and geopolitical tensions in the Middle East.
Although Brent dropped slightly mid-yesterday from $90 per barrel, players, including major traders, see the possibility of the price hitting the $100 ceiling.
Coming amid struggling oil production in Nigeria and over $3 billion debt from the importation of Premium Motor Spirit (PMS) by the Nigerian National Petroleum Company Limited (NNPCL), there are indications that the revenue projection for the country’s 2024 budget may face serious threat if the uncertainties in the global space push oil prices higher.
While crude has firmed amid a brief potential ceasefire in Gaza, Mexico’s attempt to cut exports and inflation data from the United States and China are creating fears that oil prices could keep rising, especially if OPEC maintains discipline in the production cut.
In Nigeria, the 2024 budget is hinged on 1.78 million barrels per day of oil production, but current production has been around 1.3 million barrels per day amid disruption by vandals in the Niger Delta.
Reuters reported on Monday that oil traders are owed over $3 billion by NNPCL, as the state oil firm struggles to recoup money due to the return of subsidy payments.
By implication, while oil price rise should mean a significant increase in revenue for Nigeria, importation of PMS typically erodes the gains and makes high oil prices a major challenge for a country struggling to boost dollar earnings and lower the pressure on the Naira.
Although marketers are to begin sourcing PMS locally from the Dangote Refinery, existing loans backed by crude oil and other obligations, where NNPCL would have to repay crude, could continue to lower the amount of oil that would accrue to the Federal Government.
While OPEC+ has already taken five million barrels per day off the market to support prices since late 2022, Chief Executive Officer of Vitol, Russell Hardy, said crude prices could hit $100 per barrel before the end of this year if OPEC+ maintains its production discipline and continues to withhold product from the global markets.
