Nigeria risks missing out as $100 oil beckons

The recent rise in oil prices has raised the prospect of $100 per barrel but Nigeria, the largest producer of the commodity in Africa, may not reap a windfall, according to BusinessDay findings.

Brent crude, the global benchmark against which Nigeria’s crude oil is priced, rose to $91 per barrel on Tuesday, taking its gains for the year to 18 percent. The US benchmark West Texas Intermediate has been even stronger, rising 21 percent.

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The uptrend in the past two weeks, after a month in a tight range, has been driven in part by fears of a widening conflict in the Middle East, including the potential for an Iranian backlash to a suspected Israeli attack on its consulate in Damascus.

Analysts said prices are likely to remain elevated even if political tensions begin to ease, because economic growth in the US, Europe and China is likely to boost demand while the Organization of Petroleum Exporting Countries (OPEC) constrains supplies.

“It’s supply-and-demand with geopolitics thrown in on top,” said Paul Horsnell, global head of commodities at Standard Chartered.

The latest report from the International Energy Agency forecasts that supply growth from outside of the OPEC+ cartel will reach 1.6 million barrels per day this year, down from 2.4 million in 2023.

“A lot of the market thought that the growth of last year would continue unabated this year. It hasn’t,” said Horsnell, who expects prices to remain above $90 per barrel in the coming months.

With OPEC+ still “holding the cards on supply”, prices are likely to remain elevated so long as major developed economies don’t sink into a deep recession, said Ehsan Khoman, head of commodities at MUFG, a Japanese holding company.

He noted, however, that OPEC+ countries will probably ease their production restrictions if oil prices rise above $100 per barrel in order to avoid “eating into their own exports.”

While countries like Russia and Saudi Arabia stand to reap significant financial rewards, analysts said Nigeria faces a confluence of challenges that could dampen its ability to capitalise on the rising prices.

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“Why should a country like Nigeria that has been producing oil, exporting oil for the past 70 years not have a scientific way of metering, recording what leaves, what is pumped, what is sold and what is not sold? And it’s deliberate,” Seriake Dickson, representing Bayelsa West in the National Assembly, said on Channels Television.

“People from Abuja and Lagos are the masterminds and the official system is not ignorant and not innocent. The official security system, the official oil system, the official federal system, all of it in its entirety,” he added.

Dickson, a two-term governor of Bayelsa State in the South-South geopolitical zone of Nigeria, alleged that the official system and some oil companies are beneficiaries of oil theft in the Niger Delta.

Large-scale oil theft from pipelines and wells has been one of President Bola Tinubu’s biggest challenges in recent years, damaging government finances and limiting the country’s output and exports.

The country relies on oil exports for more than two-thirds of its earnings and about 90 percent of foreign exchange income.

At the current price of $91 per barrel, Nigeria earned additional revenue of $13.04 per barrel, whereas the country’s 2024 budget was based on 1.78 million barrels per day (bpd) and $77.96 per barrel.

Despite this increased earnings, Nigeria has struggled to raise output as theft and sabotage have forced oil majors including Shell and ExxonMobil to exit all their onshore assets.

“The easiest and earliest way to get out of this foreign exchange problem is to increase oil production,” said Festus Osifo, president of the Petroleum and Natural Gas Senior Staff Association of Nigeria.

“We appeal to the government of President Tinubu to relocate the military commanders to the Niger Delta region (where Nigeria’s oil is produced) to ensure that this menace of oil theft is put to a halt, and we will be able to generate more revenues at the end of the day,” Osifo said in a statement seen by BusinessDay.

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Recently, troops tackling oil theft arrested 25 suspected oil thieves and recovered 565,200 litres of stolen crude, 22,500 litres of illegally refined diesel, and 8,000 litres of petrol.

Oil output hit 1.48 million bpd in February, according to data from the OPEC. While oil production is gradually recovering, it is still below a budget target of 1.78 million bpd.