NIGERIA enjoyed a N318bn ($832.21m) increase in revenue during the month of February as a result of a rally in global oil prices as the production cuts introduced by the Organisation of Petroleum Exporting Countries (Opec) is having a positive effect on the market.
Heavily dependent on crude oil for survival, Nigeria lives at the mercy of the petroleum market as the 90% of government revenue comes from exports. With the fall in global industrial output as a result of the coronavirus pandemic, Nigeria has been hit hard as it has led to reduced crude oil demand, which has in turn depleted Nigerian revenue.
In a bid to arrest the development, Opec and its allies have introduced an output reduction programme to prevent a global oil glut. This has successfully reduced supply and over the last month, oil prices have rallied to as high as $63 barrel, which has benefitted Nigeria to the tone of $822m during February.
At the presentation of the 2021 budget in January, Zainab Ahmed, Nigeria’s finance minister, had stated that the benchmark price for crude oil was retained at $40 a barrel. This means that whenever the global crude oil price rallies above $40, the government has excess revenue which can either be invested in new capital projects, saved or used to offset debts.
Since February this year, Brent Crude, the grade identical to Nigeria’s Bonny Light Crude which sells at the same price, has traded consistently over $60 a barrel. During the second quarter of 2020, prices crashed to below $20 a barrel but have traded above $63 a barrel for the most part of February 2021.
Figures obtained from the Federal Ministry of Finance, Budget and National Planning showed that crude oil traded at $65.18, $66.71, $67.15 and $66.26 a barrel on February 23, 24, 25 and 26, respectively. Trading at an average of about $60 a barrel for the past 30 days, Nigeria has been earning an additional amount of about $20 a barrel against the 2021 budget benchmark of $40 a barrel.
In January, Ms Ahmed had also started that crude oil production was projected to increase from 1.8m barrels per day in 2020 to 1.86m barrels in 2021, as economies recover from recession. Ms Ahmed said: “Although Nigeria’s total production capacity is 2.5m barrels a day, current crude production is about 1.7m barrels, including about 300,000 barrels of condensates, which indicates compliance with Opec quota.”
However, operators in the oil sector said that although the rise in crude oil price meant more revenue for Nigeria, it would also cause a further hike in the prices of refined petroleum products. They noted that if not for the subsidy being incurred by the Nigerian National Petroleum Corporation, the domestic price of petrol would have risen to more than N190 a litre.