Crude Oil Production Still Low

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May 13, 2022/CSL Research

Based on news reports, the Organisation of Petroleum Exporting Countries (OPEC), in its Monthly Oil Market Report (MOMR) for May, noted that in April the country underproduced 18,000bpd versus the previous month of March. For several months, Nigeria has failed to meet its OPEC quota, blaming massive oil theft, inability to restart oil wells shut down in the wake of the Covid-19 pandemic, lack of investments as well as community issues. The report showed a continuous fall in production volumes through the year. Oil production fell to 1.219 million barrels in April, down from 1.238 million barrels per day in March, and down from February’s production figure which was 1.258 million barrels per day, putting Q1 average production at 1.299 million barrels per day.

GDP growth strengthened in 2021, supported by base effect in the non-oil sector, while the oil sector remained uninspiring. Average daily crude oil production (excluding condensates) was c.1.31mb/d in 2021. We expect crude oil terminal maintenance, shutdown, vandalism, and reduced investments in the oil sector to continue to undermine oil production, masking the gains from increasing oil prices. The new Petroleum Industry Act 2021 (PIA) which was signed into law by the President on 16 August 2021 to repeal the extant Petroleum Act 2004, creates provisions and innovations that will affect various aspects of the oil and gas industry and ideally should result in increased investments in the oil and gas sector. We however expect the elections to take center stage from the second half of the year and we are increasingly less optimistic that necessary investments will go into the oil sector.

Brent oil price remains high, and closed yesterday at US$107.45/bbl. Theoretically, the continued uptrend in crude oil prices, a major source of foreign exchange to the country, suggests FX accretion and should imply increased revenue, given the country’s oil price budget of US$62/bbl for 2022. However, the perennial issues limiting production continues to mask the gains from high oil prices. Again, increasing oil price implies an increase in the landing cost of petrol, leading to increase in subsidy payments. The NNPC boss, Mele Kyari, had in previous reports put the comfort oil price zone for Nigeria at US$58-US$60/bbl. saying that for the NNPC, anything above US$70-US$80/bbl., will create major distortions in the projections of the corporation and create more difficulties.

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