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IMF Predicts Dwindling Oil Revenue For Nigeria, Others as Energy Transition Gains Momentum

The transition from fossil fuels to cleaner energy and the volatility of oil prices will be two significant determinants when it comes to oil revenue. 

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The International Monetary Fund (IMF) has predicted dwindling oil revenue for Nigeria and other oil-producing countries in Sub-Saharan Africa.

The Washington-based financial institution noted that the transition from fossil fuels to cleaner energy and the volatility of oil prices will be two significant determinants when it comes to oil revenue. 

In the recent report titled “Savings from Oil Revenues Could Help Africa’s Producers Manage Price Swings,” and published by the IMF, the institution noted that oil exporting countries in sub-Saharan Africa should target buffers of around 5 to 10 percent of gross domestic product to manage large swings in oil prices.

In other words, Nigeria and other concerned countries in Sub-Saharan Africa would need to maintain annual fiscal surpluses of at least one percent per annum over a 10-year period.

The International Monetary Fund (IMF) stated that oil exporting countries in sub-Saharan Africa should engage in massive savings of oil revenue as it will help them manage price swings.

Investors King understands that oil prices have seen huge volatility in recent times. 

The Bretton Woods institute noted that oil prices have fluctuated between $23 per barrel to peak at $120 over the last two years. This is evidence of the uncertain nature of oil revenue. However, most oil exporters in the region haven’t accumulated enough savings to insure against unpredictable oil price changes. 

It added that sovereign wealth funds in sub-Saharan Africa hold assets of just 1.8 per cent of gross domestic product, compared to 72 per cent in the Middle East and North Africa, forcing countries to borrow or draw down financial assets whenever oil prices fall.

The IMF also noted that revenue from oil could drop sharply by a quarter in 2023 and by half in 2050.

Moreover, as countries transition to low-carbon energy sources, oil revenues could sharply decline. By 2030, oil revenues in the region could fall by as much as a quarter and by 2050, by half. Building buffers now would help the region’s oil exporters navigate the transition toward clean energy while managing oil price fluctuations,” the report partly read.

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Crude Oil

Nigeria Will Become Africa’s Biggest Oil Refining Hub by 2025– Report

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A leading research firm, Hawilti Limited has projected that Nigeria will emerge as Africa’s biggest crude oil refining hub by 2025.

This was contained in its report released on Monday based on its most recent research on African refineries with the continent’s outlook for 2023.

Investors King understands that Hawilti Ltd is a pan-African investment research agency and advisor to businesses, investors, public and private institutions, as well as governments across Africa with the goal of building a transparent and vibrant continent through its unique research and contents.

According to its report, the Dangote Refinery of 650,000 barrels per day capacity and the rehabilitation of Warri, Port Harcourt and Kaduna refineries with a total refining capacity of 445,000 barrels per day will make Nigeria top the list by 2025.

On the West Africa region’s progress in crude oil refining, the report pointed out its positive outlook and growth as its capacity increased in 2023.

It added that the West Africa region now has the largest refining capacity in sub-Saharan Africa of which its operation is presently at 23 percent.

“Both the opening of the Dangote Refinery and the rehabilitation of state-owned refineries have the potential to make Nigeria Africa’s biggest refining hub by 2025.

“The long-awaited Dangote Refinery, a 650,000 barrels per day single-train crude refining facility that has been a decade in the making, is finally expected to start production this year. Its commissioning is already sending hopes that it could finally start rebalancing Nigeria’s trade deficit.

“Tecnimont continues to make progress on bringing Port Harcourt’s complex back to 90 per cent of its capacity while Daewoo E&C was selected in 2022 to execute two ‘quick fix’ projects at both Warri and Kaduna,” says the report.

Hawilti, however, kicked against Nigeria’s importation of petroleum products and petrol subsidy as its refineries are under construction.

It urged Dangote Refinery to reduce imports, increase its currency savings, fight inflation, and enhance its macroeconomic outlook.

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Nigeria’s Oil Revenue Dropped by N500bn Last Month– Report

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Nigeria has recorded a sum of N500 billion loss in its oil revenue last month due to low crude oil production.

Investors King reports that Nigeria’s total oil export in January was 37.2 million barrels instead of the projected 49.6 million barrels of oil if it had exported 1.6mb/d.

The report as contained in the shipping data of Refinitiv Eikon, an export tracking firm indicated that Nigeria exported 1.2mb/d instead of the 1.6mb/d quota given to it by the Organisation for the Petroleum Exporting Countries (OPEC).

It noted that with the current data, Nigeria’s oil production is yet to totally recover and attain its expectation.

Selling at $89 per barrel in January, Nigeria made N1.5 trillion from its oil exportation which is less than OPEC’s target of 2 trillion. This makes the country at a loss of N500 billion as it didn’t meet up OPEC’s 1.6mb/d target.

However, the Refinitiv Eikon revealed that several other countries aside Nigeria failed to meet up OPEC’s production quota. Countries like Iraqi, Saudi Arabia and Iran had declined.

Investors King recalls that in November, OPEC had pegged a 2 million barrel per day cut to the OPEC+ output target. In its expectation, 1.27 million barrels per day ought to be disbursed by 10 participating OPEC members.

The statistics showed that the 10 OPEC countries produced 920,000 barrels of oil per day below the stipulated target for the month of January. Meanwhile, the decrease in December was marked as 780,000 bpd.

The Group Chief Executive Officer of the Nigeria National Petroleum Company Limited (NNPCL), Mele Kyari, had said the issue of oil theft and vandalism which has eaten deep into the sector is a major cause of Nigeria’s low production. 

He noted that the country loses 900,000 barrels per day to theft which must be urgently looked into for increased output in the oil sector.

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Oil Gains on International Energy Agency Comment

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Crude oil prices inched higher on Monday after shedding 8% last week amid rising recession concerns. On Monday, oil appreciated slightly on Fatih Biro, the International Energy Agency (IEA) Executive Director comments that China’s recovery remains a key driver for oil prices.

Brent crude rose 32 cents, or 0.4%, to $80.26 a barrel at 8:00 am, while U.S. West Texas Intermediate (WTI) crude futures climbed 22 cents, or 0.3% higher, to $73.61.

Last Friday, WTI and Brent slid 3% after strong U.S. jobs data raised concerns that the Federal Reserve would keep raising interest rates, which in turn boosted the dollar. The stronger greenback typically reduces demand for dollar-denominated oil from buyers paying with other currencies.

While recession fears dominated the market last week, on Sunday International Energy Agency (IEA) Executive Director Fatih Birol highlighted that China’s recovery remains a key driver for oil prices.

The IEA expects half of global oil demand growth this year will come from China, where Birol said jet fuel demand was surging.

He said depending on how strong that recovery is, the Organization of Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, may have to reassess their decision to cut output by 2 million barrels per day through 2023.

“If demand goes up very strongly, if the Chinese economy rebounds, then there will be a need, in my view, for the OPEC+ countries to look at their (output) policies,” Birol told Reuters on the sidelines of a conference in India.

Higher interest rates, however, are keeping a lid on further price gains, as they are likely to curtail economic growth and increases in fuel demand, say analysts.

“We are not seeing any big evidence of a China domestic demand rebound yet, though mobility numbers are encouraging. Hence, concerns about central banks’ rate hike cycles and higher for longer interest rates remains the key drag on oil prices after falling more than 7% last week,” said Suvro Sakar, lead energy analyst at DBS Bank.

“It’s not immediately intuitive that good jobs data would cause a crash in oil prices, but such are the vagaries of the market currently.”

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