Analysts Cut Oil Production Estimate After Uninspiring Q2 Figure
Analysts have lowered their oil production expectation for the third quarter of 2023 to 1.3 million barrels per day (mbpd), citing an uninspiring performance in the oil and gas due to terminal shut-ins, pipeline maintenance, and ageing infrastructure.
Nigeria continues to face challenges in crude oil production after years of low investment in crude oil infrastructure.
With steep dependence on hydrocarbon sales, the country has continued to fall behind the Organisation of Petroleum Exporting Countries and Allies (OPEC+) quota amidst a relatively high crude price in the global market.
In its market report, CardinalStone Research these downsides have led the firm to taper oil production projections for the third quarter of the year to 1.3 mbpd, more than 13% below the previous estimate of 1.5 mbpd. This has caused a drag on foreign receipts from crude oil exports while the country is confronted with foreign currency shortage challenges.
In the second quarter of 2023, Nigeria recorded an average daily oil production of 1.22 million barrels per day (mbpd), lower than the daily average production of 1.43mbpd recorded in the same quarter of 2022 by 0.22mbpd.
According to data from the statistics office, the latest performance was lower than the first quarter of 2023 production volume of 1.51 mbpd by 0.29 mbpd. In real terms, the oil sector went down by 13.43% (year-on-year) in Q2 2023, indicating a decrease of 1.66% points relative to the rate recorded in the corresponding quarter of 2022 when it slumped by 11.77%)
Oil sector growth dropped by 9.22% points when compared to Q1 2023 which was –4.21%. On a quarter-on-quarter basis, the oil sector recorded a growth rate of -14.12% in Q2 2023.
“Barring any significant shock, we expect the oil sector to return to growth in Q3-2023, predominantly due to the favourable base effects from the corresponding period of last year when crude oil production averaged 1.20mb/d.
“However, we expect the non-oil sector’s growth to settle significantly lower than Q2-2023, in line with the near-term pressures arising from the government’s reforms. Overall, we anticipate that the economy will grow slower in Q3”, Cordros Capital said in its market report.
In the period, the Oil sector contributed 5.34% to the total real GDP, down from the figure recorded in the corresponding period of 2022 and down from the preceding quarter, where it contributed 6.33% and 6.21% respectively.
CardinalStone Research estimate translates to an oil GDP projection of 8.3% year on year in Q3 2023 versus 25% year on year previously.
“We are optimistic about the last quarter of the year, as Seplat has already completed drilling five oil wells, three of which are expected to begin production”, analysts said in the report. Elsewhere, due to the robust performance of the non-oil sector, the investment firm maintained an initial forecast of 2.9% year on year for Q3 2023.
It said its decision is premised on ICT-led growth in the services sector due to the accretive benefit of increased 4G and 5G network coverages and elevated CAPEX spending.
“In addition, we expect credit growth to remain elevated, supporting the outturn in the financial services sector. Finally, our outlook for the agriculture sector remains modest due to the prevailing security concerns in the country”.
Overall, CardinalStone said Nigeria’s GDP growth would settle at 2.9% year on year in Q3, and 2.8% in 2023 respectively. Economic traction was capped in the second quarter of the year, as sustained headwinds in the oil and gas sector led to a GDP growth of 2.5%, defying analyst expectations of 2.8% year on year.
The print was the lowest Q2 GDP growth since the exit from the pandemic. The oil sector (-13.4%) shaved off about 80 basis points from growth, as average crude oil production (1.22mb/d) in the review quarter touched the second lowest point since 2013.
“We attribute the uninspiring oil outturn to the leakages in the Forcados terminals, ageing infrastructure and strike action by oil workers”, CardinalStone said in its commentary note. #Analysts Cut Oil Production Estimate After Uninspiring Q2 Figure
