June 19, 2023/CSL Research

According to the latest monthly oil market report obtained on Friday from the Organisation of Petroleum Exporting Countries (OPEC) for June 2023, Nigeria’s total oil production increased by 6.73 million barrels to 36.7 million barrels in May 2023. The report indicated that crude oil output from Nigeria rose from a total of 29.97 million barrels in April to 36.7 million barrels in May. These figures imply that the country pumped an average of 0.99mbpd (excluding condensates) in April, but this moved up to 1.18mbpd in May. 

Oil output from Nigeria has been fluctuating over the past years, as the country recorded its lowest oil production volume of 0.94mbpd in September 2022. The Federal Government and oil sector players blamed this on the massive crude theft in Nigeria’s oil rich Niger Delta. The situation also led to significant revenue losses for the country, international oil companies operating in Nigeria, as well as indigenous operators in the industry. However concerted efforts to combat crude oil theft resulted in improved production, as industry figures showed crude production output had a 7-month rally from September 2022 to February 2023. 

The new policy around FX being implemented by the new administration requires immediate attention to the oil sector, which is the core source of FX for the country. The new administration announced the unification of the rates at the various FX windows and the commencement of a floating rate FX regime. A focus on rate convergence without structural reforms, which we believe should begin from increasing production to increase the supply of FX, may not be able to adequately address the distortions in the FX market, which was created by the huge supply -demand mismatch.