The price of Brent, the benchmark of Nigeria’s crude oil surged past $90 per barrel on Wednesday, raising fresh concerns about the sustainability of Nigeria’s ‘secret’ bill for fuel subsidies bill.
The last time that Brent settled above $90 per barrel was six months ago on October 27, 2023, and with the Organization of Petroleum Exporting Countries and allies (OPEC+) widely expected to maintain its conservative stance, analysis points to a rising trajectory.
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At the current price of $90 per barrel, Nigeria earned additional revenue of $12.04 per barrel; whereas, the country’s 2024 budget was based on 1.78 million barrels per day and $77.96 per barrel.
Nigeria’s crude oil production for February recorded a decline, dropping to 1.32 million barrels per day (mbpd) in February, OPEC revealed. This reduction in output marks a setback for Africa’s largest oil producer, impacting both its economy and global oil markets.
According to OPEC’s latest monthly report, the largest economy in Africa’s February crude production fell compared to its January output, which stood at 1.46 mbpd.
The addition of blended and unblended condensates mark up the volume of production to 1.54 million bpd in February, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), indicating a short in the budget of the FG.
Higher oil price also translates to a larger petrol subsidy burden on the Nigerian National Petroleum Company (NNPC) Ltd.
This is because the Federal Government has forced a lid on the retail price of petrol, even as the landing cost has long crossed the pump price, leading to the conclusion that the government has begun subsidising the commodity.
“A combination of higher exchange rate, higher oil price, and static retail price of petrol means higher petrol subsidy bill as Nigeria’s lack of refining capacity means it imports all the petroleum products it uses locally,” Charles Akinbobola, a Lagos-based energy analyst, said.
He added: “Nigeria’s petrol subsidy programme remains a contentious issue. While intended to cushion the blow of high pump prices for consumers, its true cost and funding mechanism are often shrouded in secrecy.”
There are reports that the NNPC was using proceeds from Nigeria LNG dividends to pay subsidies on petrol while other reports suggest the state-owned company deducts the subsidy amount from the proceeds of Nigeria’s crude oil sales before remitting the remaining balance to the federation account.
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The exact amount deducted by NNPC remains unclear. Estimates suggest it could be as high as N17.72 billion daily, raising concerns about transparency.
“It is expedient that its accounts are published such that the general citizenry in whose interests the NNPC manages these resources are apprised of its dealings,” said Faith Akinnagbe, an energy lawyer with the Lagos-based Center for Development Studies.
Nigeria, a pivotal member of OPEC, faces a barrage of obstacles in its oil sector, encompassing pipeline vandalism, rampant oil theft, and regulatory ambiguities, jeopardizing both production levels and economic aspirations.
Last month, Mele Kyari, the Group Chief Executive Officer (GCEO) of the Nigerian National Petroleum Company Limited (NNPC), unveiled initiative to combat oil theft, citing the deactivation of 6,409 illegal refineries in the Niger Delta region.
“We have deactivated 6,409 illegal refineries in the Niger Delta region. Today, we have disconnected up to 4,846 illegal pipes connected to our pipelines, that is out of 5,543 such illegal connection points. That means there are a vast number of such connections that we have not removed.”
According to him, going by the volume of oil stolen daily and the brazenness with which the perpetrators operate, crude oil theft is the most humongous and virulent economic crime in Nigeria that must attract the attention of anti-graft agencies.
On the international market, energy stocks have started to outperform the wider stock market as Brent hits $90 per barrel this week, with energy leading the S&P 500’s eleven market sectors in March thanks to a 10 percent rise.
The oil markets are anticipating the OPEC monitoring meeting on April 3, looking for potential clues on the directionality of pricing, with JPMorgan already predicting Brent to be in the $90s by May on Russia’s production cuts.
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Meanwhile, the Joint Ministerial Monitoring Committee (JMMC) of OPEC+ is unlikely to propose any changes to oil production policy when it meets on April 3, numerous sources in the alliance have told Reuters.
The JMMC, the panel that takes stock of oil market developments and proposes courses of action to the ministers of the OPEC+ group, is meeting on Wednesday, just as oil prices hit their highest level so far this year – and the highest in five months – amid renewed geopolitical tensions in the Middle East and signs of tightening oil supply.
