External Reserves Up as Nigeria’s Oil Production Rises
Nigeria’s external reserves rise further, marking four weeks of an uptrend, as oil production volume inched upward after the government outsourced pipeline monitoring to private security agents in 2022.
The oil-dependent nation has been battling with large quantity crude theft and lower production volume at a time when global crude oil prices were strong. Increased pipeline vandalism, crude oil theft and lack of investment in the oil sector saw Nigeria reporting daily crude oil production at 1.02 million barrels daily as of the end of September 2022.
This resulted in to lower revenue generation from oil exports, forcing the Nigerian government to borrow from local and international debt capital markets last year. In 2022, Nigeria’s debt rose to N44 trillion apart from N23 trillion obtained via the CBN ways and means window.
According to the Nigerian Upstream Regulatory Commission (NUPRC) latest report, the country’s aggregate crude oil production, including condensates, settled at 1.41 million barrels per day (mbpd) in December 2022.
Production volume had fallen below one million barrels per day due to issues driven by weak infrastructure and shutdowns. Over a period of 12-month, the average crude oil produced by the Nigerian government printed at 1.38 mbpd, representing a 14.9% year-on-year decline when compared with 1.62 mbpd reported in 2021.
Consequently, Nigeria’s foreign currency reserves expanded for the fourth consecutive week straight, up by US$42.32 million to close at US$37.21 billion on Friday. Despite improvement in supply level, production volume remains significantly below 1.88 mbpd quota allocated by the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+).
Following measures to curb oil theft and revamping of refineries, crude oil production increased in the Bonny by 62.8% in December, Qua Iboe surged by 6.8% and Forcados terminal increased by 4.6% month on month in December.
Cordros Capital expect crude oil production at 1.53 mbpd on average in the current year, lower than 1.69 mbpd estimated by the Nigerian government.
“We think it is unlikely to reach the pre-pandemic level of about 2.10mbpd in the absence of incentivising investment in new production capacity and proper training of indigenous firms to handle the divested International Oil Company’s assets”, Cordros noted in a note.
Analysts said they expect the oil revenue to remain underwhelming because of the relatively low crude oil production volume and high under-recovery costs. In 2022, despite an improved balance of payment, the external reserves continued to decline, impeding the apex bank’s ability to defend the currency.
In September, Nigeria recorded a trade surplus of N269.34 billion for the third consecutive quarter, albeit slower than N1.97 trillion seen in the second quarter of the same year, on the back of gains from higher crude oil prices.
As of the third quarter of last year, oil exports contribute about 80% of total exports, according to data from the budget office. The external reserve balance has been on a free fall, declining to US$37.09 billion in December 2022 from US$40.52 billion at the start of the year.
Analysts at Meristem Securities said the decline was driven by high petroleum subsidy bills and low accretion from non-oil sources. It was noted that the apex bank’s interventions in the interbank foreign exchange market aimed at enhancing supply also pulls the balance further downward.
“.. We expect these current conditions depressing reserves to remain. The OPEC’s commitment to maintaining crude oil prices around current levels provides optimism for the current account. However, low production volumes in the country could limit the surplus”, Meristem said in its outlook for 2023. #External Reserves Up as Nigeria’s Oil Production Rises