Following the government’s outsourcing of pipeline monitoring to private security agents in 2022, Nigeria’s external reserves increased further, marking four weeks of an upswing. This was due to an increase in oil output volume.
The oil-dependent country has been struggling with significant petroleum theft and decreased production volume at a time when crude oil prices were high on the world market. Nigeria reported daily crude oil output of 1.02 million barrels per day as of the end of September 2022 due to increased pipeline vandalism, crude oil theft, and a lack of investment in the oil sector.
Due to the decreased earnings from oil exports, the Nigerian government was forced to borrow money from domestic and foreign debt capital markets last year. Nigeria’s debt increased from N23 trillion to N44 trillion in 2022.
The Nigerian Upstream Regulatory Commission (NUPRC) estimates that global crude oil output, including condensates, peaked in December 2022 at 1.41 million barrels per day (mbpd).
Due to problems brought on by shoddy infrastructure and shutdowns, production volume has dropped below a million barrels per day. The average amount of crude oil produced by the Nigerian government during a 12-month period was 1.38 mbpd, a 14.9% year-over-year decrease from the 1.62 mbpd reported in 2021.
Nigeria’s foreign exchange reserves increased for the fourth week in a row as a result, climbing by US$42.32 million to US$37.21 billion on Friday. Despite an increase in supply, production volume continues to be much below the 1.88 million barrels per day (mbpd) cap set by OPEC and its allies (OPEC+).
Following steps to prevent oil theft and refinery renovations, crude oil output climbed in December at Bonny by 62.8%, Qua Iboe by 6.8%, and Forcados Terminal by 4.6% month over month.
In contrast to the Nigerian government’s estimate of 1.69 million barrels per day for crude oil production in 2023, Cordros Capital projects a lower average of 1.53 million barrels per day. “We think it is unlikely to reach the pre-pandemic level of about 2.10 million barrels per day in the absence of incentivizing 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.
On the strength of profits from increased crude oil prices, Nigeria posted a trade surplus of N269.34 billion in September for the third consecutive quarter. This was slower than the N1.97 trillion witnessed in the second quarter of the same year.
According to figures from the budget office, oil shipments made up roughly 80% of all exports as of the third quarter of last year. The foreign reserve balance has been in fast fall, dropping from US$40.52 billion at the beginning of the year to US$37.09 billion in December 2022.
Meristem Securities analysts said that poor accretion from non-oil sources and large petroleum subsidy payments were the main causes of the drop. The apex bank’s actions in the interbank foreign currency market were identified as having the goal of 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.
