The international oil benchmark, Brent crude, extended its gains on Friday, rising above $93 per barrel, in what is a potential boost to Nigeria’s crude oil export revenue.
Brent crude, against which Nigeria’s oil is priced, hit a fresh seven-year high of $93.44 per barrel as of 4:15pm Nigerian time on Friday, trading more than $30 higher than the Federal Government’s benchmark for the 2022 budget.
The 2022 budget, which was signed by President Muhammadu Buhari in December, was based on oil production of 1.88 million barrels per day, with an oil benchmark price of $62 per barrel.
For Nigeria, which relies on crude oil for about 50 per cent of government revenues and over 90 per cent of export earnings, rising oil price means increased revenue.
On the other hand, rising oil price also translates to increased cost of petroleum products as the country depends heavily on imports due to a lack of domestic refining.
A winter storm in the United States is behind the latest oil price rally, fuelling concerns about production outages in the Permian Basin, the largest US shale play, according to Reuters.
Nigeria has not been able to leverage the oil price rally as its crude oil production has remained below the quota given to it by the Organization of the Petroleum Exporting Countries in recent months.
It was reported this week that Nigeria missed its crude oil output quota for January 2022, pumping 1.46 million bpd as against a quota of 1.68 million bpd.
“Crude oil terminal maintenance, shutdown, vandalism, and reduced investments in the oil sector have continued to undermine oil production, masking the gains from increasing oil prices,” analysts at CSL Stockbrokers Limited said in a new report.
According to the report, the Petroleum Industry Act 2021, which was signed into law by the President on August 16, 2021 to repeal the extant Petroleum Act 2004, creates provisions and innovations that will affect various aspects of the oil and gas industry.
The analysts said, “We are hopeful that it will result in increased investments in the oil and gas sector. We project crude oil production (including condensates) will reach 1.75mbpd in 2022. While this is an improvement from 2021 levels, it still lags the five-year average of 1.85mbpd.
“We expect the continued elevated crude oil price, coupled with the passage of the PIA, to incentivise drilling activities. Beyond this, we expect the commencement of 160,000 Amukpe-Escravos export terminals in H2 2022 to support crude oil production.”