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Nigeria’s oil production increases as prices rise above $44

12 Apr 2016
Financial Nigeria

Summary

A report by FSDH Merchant Bank Limited says Nigeria’s oil production rose 2.97 percent to 2.14 million barrels per day in January 2016.

Nigerian President Muhammadu Buhari

A new report by FSDH Merchant Bank Limited says Nigeria’s oil production rose 2.97 percent to 2.14 million barrels per day in January 2016, compared with the output in December 2015 of 2.08 mbpd. According to the report, Nigeria's crude oil and condensate output for January this year hit 66.49 million barrels.

The increase in oil production in January vis-a-vis December last year is, however, lower than the oil production target in the 2016 Appropriation Bill that has been passed by the National Assembly. The federal government set a benchmark oil price of $38 per barrel and oil production of 2.2 million barrels per day in the 2016 budget. Notwithstanding, oil prices have inched higher from a monthly average of $30 per barrel in January this year, $33 per barrel in February, to $38 a barrel in March.  

On Tuesday, April 12, Brent crude rose to $44.40 a barrel at 16.22 GMT, its highest level so far in 2016. According to the FSDH report, Joint ventures (JVs) and production sharing contracts (PSC) contributed about 29.89 percent and 42.84 percent, respectively, to the January output.

The boost in oil production coincides with the increase in U.S. oil imports from Nigeria. Last month, Reuters reported that there was an increase in oil imports from Nigeria to U.S. refineries. About 11 cargoes of Nigerian crude reportedly arrived American ports in March, as Nigeria became the fourth largest source of foreign crude to U.S. refineries, ahead of Mexico, but behind Canada, Saudi Arabia, and Venezuela.

The FSDH monthly economic report for March 2016 also indicates that foreign exchange restrictions imposed by the Central Bank of Nigeria helped to reduce the pressure on Nigeria's external reserves. According to figures provided by the CBN, the country’s foreign reserves rose by $41 million from $27.82 billion recorded on February 29, 2016 to $27.87 billion as at March 31. The foreign reserves dropped 4 percent from $29.07 billion recorded on December 31, 2015 to $27.87 billion at the end of February this year, after declining by 15 percent in 2015.

The forex restrictions put in place by the CBN have helped to protect the foreign reserves but it has led to the dollar hike on the parallel market for foreign exchange due to dollar shortages, which has also partly led to rising inflation. The National Bureau of Statistics (NBS) reported today that inflation rate rose to 12.8 percent in March, higher that FSDH's estimated inflation figure of 11.76 percent rise in March.  

A different report by Financial Derivatives Company Limited (FDC), had predicted inflation to rise above 12 percent stating that, “The factors that are contributing to the spike in inflation include seasonality, cost push factors, money supply and forex shortage. These factors while transient in nature are becoming more permanent. As these factors grow increasingly embedded, they are making consumers panic. Anticipated inflation is more important because of the pass through effect of increased demand and expectations of higher prices on current prices.”


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