Nigeria may borrow more as crude oil price touch below $100/b – Rewane

As crude oil price go below $100 per barrel, Nigeria may have to borrow in order to fulfil its financial obligation, while increasing the risk of a debt distress as its debt service burden heightens. On the other hand, the price of gas, Nigeria’s second largest export rose during the period, Biasmarck Rewane, Chief operating Officer (COO), Financial Derivatives Company (FDC) Limited.
Crude oil, which accounts for approximately 75 per cent of Nigeria’s exports, is a major source of revenue for the country. A fall in the price of oil as well a constant decline in oil production is expected to reduce government revenue.
In a recent FDC publication, it said, the price of oil touched below $100pb in July as fears of a global recession, which could slowdown demand outweighed concerns on supply tightness. It fell to a low of $99.10pb on July 14th before rising to close the review period at $109.58pb on the concerns that the OPEC+ is unlikely to further increase supply in its meeting in August 3rd. On the average, oil
price fell by 10.33% to $104.93/pb in the month of July from $117.01/pb in the month of June.
Domestic oil production slumped by 4.8 per cent to 1.18million barrels per day in July 2022, down from 1.24 million barrels per day in June 2022.
The country’s oil rig count, on the other hand, remained constant for the fourth consecutive
months at 11 in July. OPEC’s crude oil production increased by 220,000 barrels per day to an average of 28.90 million barrels per day in July from 28.68 million barrels per day produced in June. Oil production increased principally in Saudi Arabia, UAE, Iran, Kuwait, and Gabon, while it declined majorly in Libya, Angola and Venezuela.
The OPEC+ has agreed to increase oil production by 100,000bpd in September, down from the agreed monthly increase of 643,000bpd for July and August. However, the fears of possible slowdown in demand as recession looms could keep oil price below $100pb in the near term. The lingering problem of oil theft and pipeline vandalism will continue to limit Nigeria from meeting its OPEC quota, which is now currently at 1.83mbpd as at the last OPEC+ meeting in August.
The price of gas was relatively high in July as hot weather condition in the US and Europe exacerbates demand for cooling gas, while gas supply remained low. Russia continued to cut its gas supplies to European countries in retaliation for the EU sanctions on its economy, and to European countries who fails to pay for its supplies in the Russian currency known as the roubles.
It rose to a high of $9.00/mmbtu on July 26th from $5.72/mmbtu at the beginning of the month, before easing to $8.14mmbtu in July 28th, closing the month at $8.19/ mmbtu. However, on average, the price of gas fell by 4.01 per cent to $7.21/mmbtu in July from $7.51/mmbtu in the month of June.
LNG is Nigeria’s 2nd largest export commodity, accounting for 12.8 per cent of total exports. Higher gas price is expected to buoy foreign earnings as well as government risk.
However, downside risk exists from low production capacity and poor infrastructure in the gas industry
Gas price is expected to remain high in the near term due to supply tightness. Russia is likely to continue to cut its supply to Europe, while demand remains on the high side due to hot weather condition in US and Europe.

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