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HomeExecutive BriefNigeria’s crude oil output remains sub-optimal, hurting revenue, forex reserves 

Nigeria’s crude oil output remains sub-optimal, hurting revenue, forex reserves 

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Nigeria’s crude output has remained suboptimal, growing by a CAGR of -7.1 percent in the last five years (as of FY 2022). The Organization of Petroleum Exporting Countries (OPEC), in its Apr-2023 Monthly Oil Market Report, revealed a reduction in the country’s crude oil output (excl. condensates) for Mar-2023, falling by 2.9 percent from 1.31 mbpd to 1.27 mbpd.

This implies that Nigeria’s crude oil output is still 27.2 percent lower than OPEC’s assigned quota of 1.7 mbpd. Nigeria’s average crude oil output for Q1-2023 printed at 1.27 mbpd, 1.6 percent lower than the average production of 1.3 mbpd in Q1-2023.

From a broader perspective, global crude oil production has seen a significant recovery in the aftermath of the coronavirus crisis, bouncing back above the 100.0 mbpd mark to print at 100.01 mbpd as of FY-2022 (up by 4.7 percent y/y compared to FY-2021’s print of 95.5 mbpd).

Despite the notable improvement seen in global oil demand, it has only grown at a CAGR of 0.1 percent in the last five years to print at 99.57 mbpd as of FY 2022.

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This essentially brings to the fore the existing deficit in the global supply of crude oil. As a result, oil prices have improved, growing by a CAGR of 8.4 percent in the last five years to print at an annual average of $99.0/bbl in FY 2022.

However, the country has not been able to take advantage of the elevated oil prices, which have led to a series of downgrades by foreign rating agencies in the last five (5) years.

We are of the opinion that crude oil output in Nigeria will remain suboptimal in the face of the prevailing inhibitions and setbacks in the broader economy. A steady improvement in the country’s oil output remains integral to a broad-based improvement of the nation’s revenue base (which accounts for over 80.0 percent of total government revenue), amid rising debt sustainability issues.

Although the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) disclosed plans to revive shut-in oil wells to boost output by 900,00 bpd, the FG will need to shore up capital investments in the oil sector, as most of the crude oil in Nigeria comes from numerous, small, producing fields located in the swamps of the Niger Delta, Anambra State, Benue State, the Trough, the Chad Basin, and Benin.

As the country’s revenue remains below par, the FG will be more inclined toward sourcing its finances from the local debt market, thus leaving pricing power in the hands of investors. On that note, we expect FG’s cost of borrowing in the local debt market to remain elevated amid the prevailing status quo. ~United Capital Plc

(omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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