Nigeria’s Oil Surge Sparks Showdown with OPEC

Africa’s most populous country is poised for a showdown with OPEC+ and its allies, as the largest oil producer on the continent seeks higher oil output. Despite a recent drop in crude prices and ongoing uncertainties surrounding OPEC+ decisions, Nigeria is pushing for increased production.

In the early hours of Monday, Brent crude prices dipped to $80 a barrel, with U.S. West Texas Intermediate crude futures down 0.5% at $75 a barrel. The anticipation of additional supply cuts by OPEC+ was offset by a delay in their meeting, contributing to the decline in crude prices.

Last week, there was a slight uptick in both Brent crude and WTI futures, marking the first weekly rise in five. However, prices took a hit mid-week following the postponement of a crucial ministerial meeting by OPEC+ and their allies, including Russia. The delay was attributed to disagreements over output targets for African producers, impacting oil prices.

Two African members of the OPEC+ group, Angola and Nigeria, are advocating for increased oil production to support their economies, particularly in the case of Nigeria, where over 80% of the national income is derived from crude oil. Notably, Nigeria produces the well-known Bonny Light crude, a benchmark for crude oil production in West Africa, renowned for its high gasoline yields.

Recent macroeconomic data indicates a positive trend in Nigeria’s energy sector. According to NBS data, the country’s oil and gas sector moderated by 0.85% in the third quarter, a significant improvement from the 13.43% contraction recorded in the same period in 2022.

As of October, Angola is producing below its scheduled 2024 output, and Nigeria is approaching its 1.38 million barrels per day allotment. However, government officials report that Nigeria was producing 1.7 million barrels of crude and condensates per day as of November 17, with a target to reach 1.8 million barrels per day by year-end.

Following OPEC’s June conference, production targets were lowered for several member countries, including Nigeria and Angola, due to previous non-compliance with standards. The recent price action in the crude oil futures market indicates a bearish trend, with the possibility of prices dropping below $78 per barrel.

Despite expectations of Saudi Arabia extending voluntary cuts into 2024, disagreements within OPEC+ over production limitations are likely to keep market sentiment negative. Short sellers in the oil futures market are speculating that the United Arab Emirates will increase Murban crude exports, influenced by refinery maintenance and a new OPEC+ mandate.

Conversely, a recent oil leak from TotalEnergies’ Egina Floating Production Storage and Offloading (FPSO) vessel disrupted Nigeria’s oil market dynamics temporarily. The FPSO, located 130 km off the coast of the Atlantic from Port Harcourt, can produce 200,000 barrels of crude oil per day and holds 23 million barrels on board. The cleanup of the spill is still ongoing, according to the National Oil Spills Detection and Response Agency’s director general, Mr. Idris Musa.