June 3, 2022/CSL Research

Following the 29th OPEC and non-OPEC Ministerial Meeting held through videoconference on 2 June 2022, the Organisation increased Nigeria’s production quota to about 1.799m barrels per day. The cartel and its allies, OPEC+ would increase oil production by 648,000 barrels per day in July. For several months, Nigeria has failed to meet its OPEC quota, blaming massive oil theft, inability to restart oil wells shut down in the wake of the Covid-19 pandemic, lack of investments as well as community issues. There has been a continuous fall in production volumes through the year. In an interview with Reuters, the Nigerian Petroleum Minister, Zainab Ahmed, noted that low crude oil production means Nigeria is barely able to cover the cost of imported petrol from its oil and gas revenue.

The oil sector contracted deeply (-26.04%y/y) despite a better average price of Brent Crude in Q1 2022 compared to Q4 2021 and Q1 2021, due to low production. Brent crude averaged US$97.86/bbl in Q1 2022, compared to US$79.66/bl in Q4 2021 and an average price of US$61.32/bl in Q1 2021. Meanwhile, the NBS pegged average daily oil production for Q1 2022 at 1.49mbpd, lower than that of 1.50mbpd in Q4 2021 and 1.72mbpd in Q1 2021. The uninspiring output was largely due to crude oil terminal maintenance, shutdowns, theft and reduced investments. With the perennial issues affecting oil production in the country, we struggle to see any recovery in the near term, though a recent Reuters Survey pointed to about 70,000bpd increase in May. The passage of the PIB that should have incentivized investments into the sector appears ineffective considering the reintroduction of the subidy regime which goes against the dictates of the PIB, has made the space unattractive for investors. The oil sector contributed 6.63% to real GDP in Q1 2022.

Brent oil price remains high, and closed yesterday at US$116.29/bbl. Theoretically, the continued uptrend in crude oil prices, a major source of foreign exchange to the country,with the increasing production quota from OPEC should imply signify significant FX accretion and should imply increased revenue, given the country’s oil price budget of US$62/bbl for 2022. However, the perennial issues limiting production continues to mask the gains from high oil prices.

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