The price of Brent crude, Nigeria’s benchmark grade, extended gains for a third session on Monday, rising above $80 a barrel to its highest in more than four months, driven mainly by wider United States sanctions on Russian oil and their expected effects on exports to top buyers – India and China.
Brent crude futures rose $1.48 or 1.9 percent to $81.96 a barrel by 2.pm Nigerian time on Monday, hitting the highest level since August 27 2023 at $81.49, indicating that Nigeria’s 2025 budget assumptions of an average price of $75 may be realistic and could improve revenue projections.
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“The rise in oil price will increase Nigeria’s GDP, which translates to economic growth. In addition to this, there will be an upward movement in the country’s foreign exchange reserves,” Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, said.
Data show the global oil market is on the high alert as Brent crude prices face upward pressure, potentially reaching $90 per barrel.
This potential surge is driven by new US sanctions targeting Russia’s oil industry and concerns about a decline in Iranian oil production.
Goldman Sachs has forecast that Brent crude prices could exceed $85 per barrel in the near term, with further increases possible if the reduction in Russian production coincides with a simultaneous decrease in Iranian output.
Impact of US Sanctions on Russian Oil Exports
The United States has enacted its most extensive sanctions package yet against Russia’s oil and gas sector. This move, announced by President Joe Biden, aims to reduce Moscow’s revenue streams while strengthening the position of Ukraine in negotiations.
The sanctions target Russian oil producers and vessels, which collectively transported an estimated 1.7 million barrels per day in 2024, accounting for 25 percent of the country’s total crude oil exports.
“There are genuine fears in the market about supply disruption. The worst-case scenario for Russian oil is looking like it could be a realistic scenario,” said Tamas Varga, PVM analyst. “But it’s unclear what will happen when Donald Trump takes office next Monday.”
Varga added, “The sanctions include a wind-down period until March 12, so there may not be major disruptions yet.”
Expectations of tighter supplies have also pushed Brent and WTI monthly spreads to their widest backwardation since the third quarter of 2024. Backwardation is a market structure in which prompt prices are higher than those for future months, indicating tight supply.
RBC Capital Markets analysts said the doubling of tankers sanctioned for moving Russian barrels could be a major logistical problem affecting crude flows.
Expectations of tighter supplies have also pushed Brent and WTI monthly spreads to their widest backwardation since the third quarter of 2024. Backwardation is a market structure in which prompt prices are higher than those for future months, indicating tight supply.
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RBC Capital Markets analysts said the doubling of tankers sanctioned for moving Russian barrels could be a major logistical problem affecting crude flows.
“No one is going to touch those vessels on the sanctions list or take new positions,” said Igho Sanomi, founder of oil and gas trading company, Taleveras Petroleum.
“Russian supply is going to be disrupted, but we don’t see this having a significant impact because OPEC has spare capacity to fill that supply gap.”
The Organization of the Petroleum Exporting Countries (OPEC+) cartel and a group of Russia-led producers are holding back 5.86 million barrels per day, about 5.7 percent of global demand.
Implication for Nigeria
Many of the tankers named in the latest sanctions have been used to ship oil to India and China after previous Western sanctions and a price cap imposed by the Group of Seven countries in 2022 shifted trade in Russian oil from Europe to Asia. Some of the ships have also moved oil from Iran, which is also under sanctions.
“The last round of U.S. Office of Foreign Assets Control (OFAC) sanctions targeting Russian oil companies and a very large number of tankers will be consequential in particular for India,” said Harry Tchilinguirian, head of research at Onyx Capital Group.
JPMorgan analysts said Russia has some room to manoeuvre despite the new sanctions, but it would ultimately need to acquire non-sanctioned tankers or offer crude at or below $60 a barrel to use Western insurance as stipulated by the West’s price cap.
Oil accounts for a large chunk of Nigeria’s foreign exchange earnings and when at full production, it accounts for 70 percent of Nigeria’s revenues.
Dollar inflows but higher petrol prices
The surge in prices, if sustained, would boost dollar inflows into the country and help reduce the pressure on the naira, though it would also put pressure on petrol prices, which are currently selling within the range of N925 to N1,020 per litre.
President Bola Tinubu is proposing an N47.9 trillion 2025 budget with at least 60 percent going to recurrent expenditure (N14.2 trillion) and debt services (N15.3 trillion), even as government spending continues to outpace revenue.
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The federal government dreams of raising N19.60 trillion or 56 percent of its revenues from the oil sector and N15.22 trillion or 43 percent of total revenues from non-oil sources.
This indicates that it has to earn more money. Oil is a major source of income. In the budget, the government thinks oil will sell above $75 per barrel and Nigeria would produce at least 2.06 million barrels per day (bpd).