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The Nigerian crude oil market is thriving, with both lighter and heavier grades in demand around the world. Strong demand has been supported by robust gasoline cracks and price increases in other grades. Demand is particularly strong for West Africa’s few heavy sour grades. As the country gears up for the 2020 sulphur regulations, refiners are focusing on low-sulphur fuels, thereby reducing their carbon footprint.
The industry accounts for approximately nine percent of Nigeria’s GDP and over 90 percent of the country’s export value. Although these figures are conservative, the amount of trade between Nigeria and its neighbours is much higher. With the help of local and international companies, Nigeria is able to diversify its exports while simultaneously expanding its economy. Currently, oil is a significant component of the Nigerian economy. Oil trading in Nigeria is a lucrative business, resulting in high foreign exchange earnings.
In 2015, Nigeria’s crude oil output remained steady at 1.376 million bpd, despite a drop in output due to renewed militancy in the Niger Delta. While this is a welcome recovery, the government’s compliance with OPEC+ cuts has raised eyebrows among some OPEC members. According to the OPEC+ deal, Nigeria will cap its oil production to 1.412 million bpd in May and 1.579 million bpd from August to December. A further cut of 1.1 million bpd will occur from January 2021 to April 2022.
As the Nigerian oil market continues to grow, the country’s fiscal policy continues to be heavily influenced by the oil industry. More than 70 percent of the public budget is funded through oil-related taxes, so the economy is highly sensitive to changes in the international oil market. Nigeria’s fiscal balance has varied wildly on an annual basis, but has generally improved during years of improved oil subsector performance. With increased oil prices and improved domestic demand, the Nigerian economy will be in a stronger position to enjoy its newfound prosperity.
The economy of Nigeria will continue to be dominated by the petroleum sector. Higher oil prices globally will encourage increased investments in the upstream petroleum sector, thereby strengthening crude oil production and natural gas exports. The non-oil economy is expected to grow modestly, despite the oil sector’s volatility. However, this growth rate may be a temporary blip and will likely drop again in the future. It’s hard to predict what the economy will look like in five years.
Oil is Nigeria’s largest export and is a major contributor to employment, government revenue, and poverty reduction. Since 1999, merchandise exports have been between thirty-four percent and fifty-two percent of the GDP. In 2003, merchandise exports accounted for 47.6 percent of GDP. Crude oil and natural gas make up the bulk of exports. Therefore, the performance of the Nigerian economy is highly sensitive to international oil market volatility.