April 20, 2022/United Capital Research

Nigeria’s crude output has consistently fallen way below its OPEC+ output quota agreement for a while now. Factors such as community interference, industrial actions by oil workers, Covid-19 outbreak at terminals, and pipeline vandalism have played a role in underproduction. A recent monthly oil market report by the Organisation of Petroleum Exporting Companies (OPEC) revealed a 1.7% decline in Nigeria’s crude oil production output, from 1.38mbpd as of Feb-22 to 1.35mbpd in Mar-22, vs assigned OPEC+ quota of 1.718mbpd, revealing a 21.2% drop in production month-on-month.

Since Dec-2020, the OPEC+ collation has been sturdy in its move to gradually increase supply, sticking to their  +5% output increase monthly until the markets become well-balanced. During this time, Nigeria’s crude and OPEC+ output have underproduced below agreed on quotas, leaving Swing producers, such as Saudi, UAE and Russia, have had to take prominent brother roles in replacing meet supply capacity non-compliant producers. However, since the Eastern European crisis, Russian oil output has been at risk of increased sanctions, potentially leading to a tight crude market. Increased closures and sanctions on Russian oil have created a potential new demand for Nigerian crude, raised drilling opportunities, and offered a chance to improve their fiscal balance with petro-dollars.

Going forward, we expect crude oil prices to be sustained at relatively high levels, although we maintain that potential production improvement output across all members of the OPEC+ and strategic oil releases by developed nations should play a significant role in curbing the rallying oil prices in the short term. For Nigeria, we expect underproduction, essentially fiscal, operational, and structural constraints will mean that the NNPC and its JVs will struggle to meet this quota.