Nigeria in dilemma as Middle East crisis, geopolitical tensions cloud oil outlook

. Oil price crashes amid US, China spat
. Nigeria launches new grade of crude, begins export to Spain

Nigeria’s foreign exchange (FX) earnings and revenue from crude oil may decline as oil prices crashed yesterday to $76 per barrel. Nigeria’s grades of crude, especially Brass River and Qua Iboe, which was trading at about $88 per barrel on July 8 crashed to $79 per barrel, losing as much as $9 per barrel with the loss yesterday alone standing at about $4 on every barrel.

The development is coming at a time when Nigeria is already facing a crisis with the volume of crude export due to a plan by President Bola Tinubu to sell the bulk of the crude locally amidst existing crude-backed loans that have eroded the low crude oil production.

Brent crude and U.S. benchmark WTI also fell by more than three per cent on Friday and then continued to drop on Monday as fear over possible recession in the U.S. recession and low demand in China highlighted.

While Nigeria still imports the bulk of its petroleum products with current differences between the actual price and the pegged pump hovering above $5 trillion, according to the country’s Finance Ministry, the tension within the Middle East, given the ongoing Israel and Gaza and its extension across the region has been projected to negatively impact the global oil price.

While lower oil prices would reduce subsidies on Premium Motor Spirit (PMS), an out-of-band increase due to the escalating crisis could worsen Nigeria’s economic crisis.

Already, Nigeria has been unable to meet its revenue projections in the 2024 budget, especially from the oil sector where oil production remained at about 1.2 million barrels throughout the first six months of the year.

This development alone has led to the loss of about $7.2 billion due to the inability to produce 88.2 million barrels of crude oil. While Israel and other countries are warning citizens to leave Lebanon, Iran and Turkiye have issued warnings over a possible escalation of the conflict in the region.

Some analysts had projected that the conflict remained the only ground that has helped oil prices to stabilise at the current price despite the many cuts introduced by the Organisation of Petroleum Exporting Countries (OPEC) and its allies.

MEANWHILE, the Nigerian National Petroleum Corporation (NNPC) Ltd announced on Monday, the launch of a new grade of crude oil called Utapate crude oil blend.
The grade meant for the international market originated from Oil Mining Lease (OML) 13, fully operated by NNPC’s upstream subsidiary NEPL.

NNPC, while noting that the Utapate crude oil blend began operations in July 2024, with its first cargo destined for Spain, noted that the grade is located offshore in Akwa Ibom State, Nigeria.

The current production of the grade stands at 28,000 barrels per day, with the potential to increase to 50,000 barrels per day. The new crude has a sulphur content of 0.0655 per cent, the state oil firm said in a release signed by its spokesman, Olufemi Soneye.

Spanish oil giant Repsol won the tender for the initial cargo of 950,000 barrels of Utapate crude, which is comparable to the highly sought-after Amenam crude, Soneye noted while adding that Gulf Transport and Trading, another leading crude oil dealer, has secured tenders for cargoes in August and September 2024.

Earlier, at the Argus European Crude Conference in London last year, NNPC Ltd had announced the launch of the Nembe crude oil grade, produced by the NNPC/Aiteo-operated OML 29 Joint Venture.

Like Nembe, the Utapate crude oil blend boasts low sulphur content and a low carbon footprint due to flare gas elimination, meeting the specifications of major European buyers, the company said.