Goldman Sachs raised on Wednesday its 12-month ahead forecast for Brent Crude oil prices to $100 per barrel from $93 previously expected on stronger inventory draws with the extended OPEC+ cuts and global demand growth. But this trigger economic challenges for Nigeria.
“We have nudged up our 12-month ahead Brent forecast from $93 a barrel to $100 a barrel as we now expect modestly sharper inventory draws,” analysts at Goldman Sachs wrote in a note on Wednesday, as seen by Reuters.
The key reasons for the higher expected Brent crude prices are that the lower OPEC oil supply and higher demand would more than offset the rise in U.S. oil production.
The cuts from the OPEC+ group led by Saudi Arabia and rising demand would allow the cartel and its allies to keep Brent prices in a range of between $80 and $105 a barrel in 2024, the Wall Street bank noted.
Goldman doesn’t see a sustained period of Brent holding above $105 next year, but it doesn’t expect prices to trade below $80 a barrel for a prolonged period, either.
Rising oil prices should have been cheering news for Nigeria but the implications are dire. Already diesel prices have gone selling around N900 per litre across major Nigerian cities. Petrol prices have not tracked rising oil prices leading to the conclusion that government has begun subsidizing the commodity.
There are reports that the NNPC was using proceeds from NLNG dividends to pay subsidies on petrol which has kept the price below N600 even when the landing cost should put the product above N600 per litre. Worse still, the government has further bloated the cost of governance with outsized cabinet and retinue of special advisers.
Earlier this month, Goldman Sachs said that oil prices could hit $107 per barrel next year if OPEC+ producers do not reverse their production cuts in 2024. The bank issued this view shortly after Saudi Arabia extended its 1 million barrels per day (bpd) cut through December 2023 in a move it said reinforced “the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets.”
Nigeria has been unable to meet its production quotas as its declining production means it cannot increase crude oil revenue from oil sales.
To underscore the country’s dire straits, Devakumar Edwin, executive director of the Dangote Petroleum Refinery said the company is currently importing crude oil and expects its first crude cargo in two weeks’.
Although the Nigerian National Petroleum Company Limited trades crude oil on behalf of Nigeria, Edwin in an interview with S&P Global Commodity Insights on Monday, said the NNPCL had committed its crude to other entities.
Earlier, the NNPCL committed to supplying 300,000 barrels per day to the Dangote Refinery but this May no longer be possible after the state oil firm announced last month that it had entered into a $3bn crude oil-for-loan deal with African Export-Import Bank. The deal allowed the company to pledge future oil production to the bank as repayments for the loan.
Local refiners say they are also feeling the strain as declining supplies from the NNPC has limited the volumes they can refine.
Crude Oil Refinery Owners Association of Nigeria, CORAN, a registered association of modular and conventional refinery companies in Nigeria has said its members are not getting enough crude leaving their refineries operating below capacity.
Last month, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said it was meeting the crude oil requirement of modular refineries, after some industry operators criticised the commission of not supplying crude to the plants.
“Contrary to insinuations from some operators in the refinery business in Nigeria that the continued failure to supply local refineries with crude oil is capable of destroying members’ investment and stifling growth in the sector, the NUPRC said it has delivered 3,614,936 barrels of crude to three local refineries between September 2021 and May 2023,” the commission had stated in a statement.
Yet, the operators continued to insist they are not getting enough supply. It’s easy to see why considering that Nigeria has to make a difficult decision between trading the limited volumes due to it and managed by the NNPC and pledging them to secure financing to protect the naira.