What hike in oil prices means for Nigeria — Analysts

Oil prices have sustained an upward rally as Brent Crude hit $76.10 per barrel, raising hope for higher reserves accretion, stable naira and elevated dollar liquidity, Daily Trust can report.

The ongoing oil prices rally over the Israel-Iran war portends a combination of risks and upsides for the economy, underlining the need for proactive management of its impact.

Brent Oil Futures for July delivery gained over nine per cent, trading at $75.15 per barrel (pb), the highest price since early February.

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Brent Crude hits $76.10

Yesterday, Brent Crude was sold for $76.10 per barrel, rising by $1.10 per barrel against the $75 for which the 2025 budget was benchmarked by the federal government.

This, analysts say represents a ray of hope for Nigeria in its drive to implement the budget.

At the same time, the oil price rally provides further relief for Nigeria’s Central Bank to further leverage on to consolidate recent gains on foreign reserves, price and exchange naira stability.

Oil prices spiked higher at the weekend after Israel executed a large preemptive strike on Iran, heightening concerns of a wider conflict in the Middle East and significant disruptions to oil supply routes.

Brent Oil Futures for July delivery gained over nine per cent, trading at $75.15 per barrel, the highest price since early February. West Texas Intermediate (WTI) crude futures increased to $74 per barrel, posting a 10 per cent increase at their peak.

While markets are closely monitoring the potential impact on Iranian oil production, analysts believe escalating concerns over a possible blockade of the Strait of Hormuz could trigger a sharp surge in oil prices.

Besides, fundamental reforms introduced by the apex bank have also corrected structural imbalances that prevented maximum growth. The Gross Domestic Product (GDP) grew by 3.4 per cent in 2024, with the fourth quarter hitting 4.6 per cent, the highest quarter of growth in over a decade.

Inflation is easing gradually, steadying the price of food staples like rice and beans while net foreign reserves have increased fivefold, and the Naira exchange rate has stabilised.

Analyst Daan Struyven at Goldman Sachs raised his short-term price target, warning that the conflict could briefly cut 1.75 million bpd of Iranian oil, pushing Brent above $90p/b.

Aside from the expected surge in oil revenue, the Central Bank of Nigeria (CBN) governor, Olayemi Cardoso has activated other measures that will ensure that more dollars accrue to the economy.

The apex bank is taking measures to improve Nigeria’s export potential, promoting backward integration principles to reduce import of items that can be produced locally and simplifying dollar remittances to the domestic economy for Nigerians in diaspora.

Drawing from China’s economic strategy, the apex bank said Nigeria’s competitive exchange rate can drive export-led growth.

To harness this potential, businesses are expected to adopt export-oriented strategies by targeting sectors with strong export potential such as agriculture, manufacturing and creative industries; implement import-substitution models by strengthening domestic production capabilities and reducing reliance on costly imports; and focus on value addition by shifting from exporting raw materials to processed goods, thereby boosting foreign exchange earnings.

There is correlation between crude oil prices and market performance – Yusuf

Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf said there is a flight by investors towards ‘safe haven assets’ as global uncertainty heightens.

However, in Nigeria, there is historically a positive correlation between crude oil prices, GDP growth, and stock market performance. “The outlook for the Nigerian stock market is therefore likely to be positive in the current context,” Yusuf said.

He said the surge in crude oil price would impact Nigeria’s forex earnings, oil being the biggest forex earner for the country.

“This development would also positively impact the country’s foreign reserves, ensure better forex liquidity and ultimately the stability of the naira exchange rate.

“The oil sector currently accounts for a significant amount of government revenue.  An improvement in crude oil price would therefore have a significant impact on government revenue. An improvement in revenue would positively impact fiscal consolidation and hopefully moderate the growth of the fiscal deficit.

“Investments in the oil and gas sector would post better returns if the conflict persists.  High oil price is good news for upstream oil and gas investors,” Yusuf said.

 19.5 trn oil revenue target on course – Analysts

Also, the possibility of the federal government achieving N19.5 trillion oil revenue target for the year rose with the soaring prices of crude oil over the Middle East crisis.

Analysts at Afrinvest West Africa, said  that the federal government’s projected oil revenue of N19.5 trillion will be on track.

They highlighted that based on previous macro commentary, the federal government needs to deploy a more prudent framework that prioritises sustainable budget growth.

To sustain revenue surge, the analysts recommended some measures the FG can take to sustain the improved macroeconomic environment.

Firstly, with the increase in revenues and substantial reduction in PMS, electricity and FX subsidies, the FG should be deploying more resources towards critical infrastructure development while also tackling insecurity headlong to support improved productivity in the agrarian communities.

Secondly, the federal government needs to prioritise optimising revenue potentials by strategically using the instrumentality of the state to end crude oil theft and boost aggregate output to the target 2.06mbpd level.

Also, as recommended by the World Bank, reducing the cost A of governance would be pivotal to Nigeria’s revitalisation drives, given the current disturbing level of debt profile.

Impact on telecoms

According to the Nigerian Communications Commission (NCC), the total active telephony subscribers increased by 3.2 per cent month/month to 164.93 million in December 2024.

The increase reflects the gradual recovery in the subscriber base following the conclusion of the NIN-SIM linkage program by mobile service providers in September. 

Analyzing the market share by operators, MTN Nigeria led by 51.4 per cent with 84.61 million subscribers, Airtel Nigeria followed with 34.4 per cent (56.62 million subscribers), Globacom with 12.2 per cent (20.14 million subscribers) and 9mobile with 2.0 per cent (3.28 million subscribers).

At the same time, the total number of internet subscribers rose by two per cent month/month to 139.28 million in December.

Looking ahead, analysts at Cordros Securities, said they expect subscriber base recovery through SIM reactivation initiatives, especially from market leaders – MTN Nigeria and Airtel Nigeria.

According to the National Bureau of Statistics (NBS) third quarter 2024 Gross Domestic Product (GDP) report, the Information and Communication sector is made up of telecommunications (telecoms) and information services; publishing; motion picture, sound recording and music production; and broadcasting.

We need to produce more – Marketer

A petroleum marketer, Otunba Tunji Oyebanji stressed the need for the country to produce more crude oil to take advantage of the rising fuel prices.

According to him, the oil price rise signals a positive development for boosting Nigeria’s dollar earnings.

“This development means more dollars for us if we can produce. Are we producing more crude oil? Normally, it is good for us, if prices go high but that only makes sense if we are producing more oil,” he said.

Emeritus Professor of Petroleum Economics, Wumi Iledare stressed that higher oil prices would strengthen the naira stability.

He said, “Higher oil prices typically translate to increased naira inflows for the government. However, when the naira is severely devalued against the dollar, the real value of these inflows is eroded. This situation, compounded by demand-pull inflation, weakens consumer purchasing power.”

Dangote Refinery liberating Nigeria – C’tee on Crude Oil Sales

The $20 billion Dangote Petroleum Refinery & Petrochemicals has been hailed as a symbol of industrial revolution, driving Nigeria’s economic emancipation.

This commendation was made by the Technical Committee of the One-Stop Shop (OSS) for sale of crude and refined products in naira initiative during a tour of the facility on Tuesday.

Coordinator of the OSS Technical Committee, Mrs Maureen Ogbonna, who led the delegation, described the refinery as a breath of fresh air, impacting virtually every sector of the economy.

“This refinery touches all our lives. There’s scarcely any sector unaffected. From pharmaceuticals to construction, food to plastics, this project is transformational. God has used the president of the Dangote Group to liberate Nigeria. I see this as the beginning of an industrial revolution,” she said.

Noting that, in line with President Bola Tinubu’s vision of achieving full domestic sufficiency in petroleum products and positioning Nigeria as a major global exporter, the committee is committed to eliminating regulatory, operational and logistical barriers that hinder the smooth supply and sale of domestic crude oil and refined products in naira.

Reflecting on the scale and sophistication of the facility, Ogbonna, who had visited during construction and more recently alongside the leadership of the Nigerian Ports Authority, expressed continued awe at its execution.

“It is truly mind blowing that one man could envision and execute such a project. As we toured the refinery, we thought we had seen everything until we reached the laboratory. That lab alone is an institution. I don’t know of any institution in Nigeria or even globally that boasts such a laboratory for petrochemical,” she said.

Applauding the engineering feat, Ogbonna urged Dangote to remain focused and undeterred by detractors, emphasising that the project is a global achievement, not a personal enterprise.

“We feel truly honoured to have been warmly received by the president of the Dangote Group and his team. My advice to him is: do not be discouraged by critics. He was never self centred. Despite the obstacles, he was driven by a vision for Nigeria’s future, reaching far beyond Africa,” she added.

In response, Aliko Dangote applauded the technical committee for its role in supporting the implementation of President Tinubu’s laudable Naira-for-Crude initiative. He commended the positive impact of the naira-for-crude swap deal on the Nigerian economy, noting that it has led to a reduction in petroleum product prices, eased pressure on the dollar, and ensured the stability of the local currency, among others.

However, he noted that due to a shortage of domestic crude oil, the refinery has increasingly relied on imports from the United States to meet its needs in recent months.

Dangote stressed the importance of bold investment in strategic sectors as a key to industrialisation, revealing that building the refinery required extensive infrastructure development, including a world-class, self-sufficient marine facility capable of accommodating the largest vessels globally.  He assured the delegation of the refinery’s commitment to national development.