Oil prices fell further in the London trading session on Wednesday, hitting five-month lows and heightening concerns that Africa’s largest economy will be able to meet its revenue targets in 2024.
This week’s sharp declines in oil prices were caused by worries about dwindling demand, less supply, and longer-term interest rates.
The markets continued to be wary of petroleum following the Organization of Petroleum Exporting Countries and its partner’s meagre output cuts for 2024.
The FG budget for 2024 is based on the adopted oil price benchmark of about $78 per barrel and a production capacity of 1.7 million barrels per day despite its inability to meet such metrics over a long while.
Data from NUPRC
Latest figures released by the Nigerian Upstream Petroleum Regulatory Commission on Tuesday showed that the country’s crude oil production, excluding condensates, dropped to 1.25 million barrels per day last month.
The prices of Crude oil were negatively impacted by record-high U.S. output, mounting worries about a slowdown in Chinese demand, and uncertainty about potential Fed monetary policy signals.
Africa’s largest producer faces challenges in boosting its revenues including foreign currency shortages, which have contributed to weak economic growth and Nigeria’s high dependence on debt financing.
Roughly 80% of Nigeria’s FG income and 90% of Nigeria’s export revenue come from crude oil and its derivatives. Nigeria’s economy is largely dependent on oil exports for economic stability
The Federal Government of Nigeria proposed to spend a total of 27.5 trillion naira in 2024. Of this, N9.92 trillion would go toward non-debt recurrent expenses, N8.25 trillion will go toward debt payment, and N8.7 trillion will go toward capital expenditures.
Brent oil futures expiring February fell 0.6% to $72.78 a barrel, while West Texas Intermediate crude futures dipped by 0.7% to $68.2 a barrel at the time of writing this report.
The values of the major oil contracts were the lowest since July. The American Petroleum Institute data indicated the U. S. in the week leading up to December saw a likely larger-than-expected decline in oil inventories.
However, the possible draw follows a string of several weeks of excellent builds. Additionally, the API data revealed an abnormal build of 5 points 8 million barrels in gasoline inventories, indicating even more of a slowdown in U.S. S. amount of fuel used.
The official inventory data, which is anticipated to show a draw of 10.5 million barrels later in the day, usually corresponds to a similar reading from the API data.
Oil bulls remain under pressure, as It’s anticipated that American gasoline inventories will rise by 20.4 million barrels, while U.S. output is predicted to stay close to all-time highs.
Elevated U. S. Even though the number of rigs in the nation is declining, the country’s increased output to make up for OPEC’s shortfall has caused tension in the oil markets.
U.S. Data from the Consumer Price Index, which was made public on Tuesday, indicated a slight increase in month-over-month inflation in November.
This raised concerns that the Fed would continue to speak in a hawkish manner following its final meeting of 2023 later in the day.
The central bank’s outlook for 2024, especially any intentions to lower interest rates, will be a major area of focus even though it is widely anticipated that rates will remain unchanged.
