Nigeria’s Oil Export Earnings to Rise After OPEC Upgrade

Nigerian government revenue from crude export is expected to boost fiscal performance in 2024 following output raise from the oil group.

Africa’s largest economy by size of GDP got a daily production target for 2024 raised by about 8.7% at the Organisation of Petroleum Exporting Countries (OPEC) and Allies (OPEC+) meeting.

Recall that Nigeria and Angola had disagreed with oil output target set by the oil group ahead of 2024. While Nigeria’s production target was raised from 1.38Mbpd to 1.5Mbpd, Angola’s volume was reduced further.

Nigeria has started recording positive results from oil theft. In addition, the country has increased daily production volume to 1.4mbpd, raising foreign currency receipts from hydrocarbon sales.

With rising production volume and the average global price of crude oil hovering at $80 per barrel, analysts said they expect export receipt to support budget performance in 2024.

The Federal Government plans to spend N27.5 trillion on over 220 million citizens next year, the majority (43%) of the budgeted spending plan has been channelled toward recurrent expenditure, based on a document review.

The budget was prepared with an oil price benchmark of $77.96 per barrel and a daily oil production estimate of 1.78 million barrels of condensates at an exchange rate of N750 per dollar.

Further oil supply cuts were agreed at OPEC+ meeting, which should fully erase the surplus in first quarter of 2024. However, the market was still left disappointed, ING commodities strategists said in a note.

After delaying their meeting due to a disagreement over 2024 production quotas for a handful of African members, OPEC+ finally met to discuss output policy for next year.

Instead of seeing further cuts distributed amongst the whole group, it was left up to individual members to decide whether they would make deeper voluntary supply cuts.

Eight members of OPEC+ decided to announce further additional cuts totalling almost 2.2Mbpd for 1Q24.  However, this includes the rollover of Saudi Arabia’s current additional voluntary cut of 1Mbpd, as well as Russia’s export cut of 500mbpd – deeper than their current 300mbpd cut.

“We had already assumed the rollover of the Saudi and Russian cuts into 1Q24, as had most of the market”, ING strategists said in a commentary note.

Analysts said new additional cuts of a little under 900mbpd will be seen in 1Q24. These additional voluntary cuts will be brought back gradually to the market after 1Q24 depending on market conditions.

One of the key issues in the lead-up to the meeting was the production quotas set for Angola and Nigeria earlier this year. These countries were not happy with their lower output target for next year.

Following an independent assessment of what these countries would be capable of producing next year, Nigeria’s production target was raised from 1.38Mbpd to 1.5Mbpd.

However, Angola’s target was cut further from 1.28Mbpd to 1.11Mbpd. Angola has said it will not follow its new quota and will pump at 1.18Mbpd from January.Naira Devaluation Deepens Economic Crisis in Nigeria

A concern for the market is the fact that these announced cuts were voluntary rather than OPEC+ wide cuts. These voluntary cuts suggest that it is becoming difficult for members to agree on OPEC+ cuts.  Therefore, if further action is needed in future, it will become increasingly difficult for the group to respond.