Brent crude, the international oil benchmark, rose above $93 per barrel on Friday, potentially increasing Nigeria’s crude oil export revenue.
Brent crude, which is used to price Nigerian oil, hit a new seven-year high of $93.44 per barrel as of 4:15pm Nigerian time on Friday, trading more than $30 higher than the Federal Government’s benchmark for the 2022 budget.
President Muhammadu Buhari signed the 2022 budget in December, based on oil production of 1.88 million barrels per day and an oil benchmark price of $62 per barrel.
Rising oil prices mean increased revenue for Nigeria, which depends on crude oil for roughly half of its government revenues and more than 90% of its export earnings.
Rising oil prices, on the other hand, translate into higher prices for petroleum products, as the country is heavily reliant on imports due to a lack of domestic refining capacity.
According to Reuters, the latest oil price rally is being fueled by concerns about production outages in the Permian Basin, the largest US shale play.
Nigeria has been unable to capitalize on the recent oil price rally because its crude oil production has remained below the quota set by the Organization of Petroleum Exporting Countries.
“Crude oil terminal maintenance, shutdown, vandalism, and reduced oil sector investments have continued to undermine oil production, masking the gains from rising oil prices,” CSL Stockbrokers Limited analysts wrote in a new report.
The Petroleum Industry Act 2021, which was signed into law by the President on August 16, 2021 to repeal the existing Petroleum Act 2004, creates provisions and innovations that will affect various aspects of the oil and gas industry, according to the report.
“We are hopeful that it will result in increased investments in the oil and gas sector,” the analysts said. We estimate that crude oil production (including condensates) will reach 1.75 million barrels per day in 2022. While this is an improvement over levels in 2021, it still falls short of the five-year average of 1.85mbpd.
“We anticipate that the continued high crude oil price, combined with the passage of the PIA, will incentivize drilling activity.” In addition, we anticipate the start-up of 160,000 Amukpe-Escravos export terminals in H2 2022 to support crude oil production.”