The renewed trade war between the United States of America, USA, and some developed economies has put more pressure on crude oil prices bringing more threat to Nigeria’s 2025 budget.
Global crude oil market closed lower with Bonny Light, Nigeria’s premium crude oil grade, dropping to $70.3 per barrel, weekend, indicating significant 13 percent decline since the 2025 budget was passed and trend to about 6.7 percent below the 2025 budget benchmark of $75 per barrel.
Industry experts told Financial Vanguard that the downward trend would continue this week given the root cause.
The renewed downward trend began early last week when US President, Donald Trump, signified his intention to sustain tariff war across selected major global economies.
This came at same time the Organization of the Petroleum Exporting Countries and allies including Russia, OPEC+, decided last Monday to increase output for the first time since 2022, pressuring crude prices further down.
Oil industry analysts told Financial Vanguard that with N20.35 trillion or 56 percent of Federal Revenue expected to come from oil out of the N36.35 trillion revenue target, the decline in crude oil price has raised the possibility of increased budget deficit for the year, and possibly increase in borrowing to fund deficit spending.
International energy analysts had stated last weekend that oil prices settled down for the fourth consecutive session on Wednesday after U.S. crude oil stockpiles posted a larger-than-expected build up, adding a further headwind as investors worried about OPEC+ plans to increase output in April and U.S. tariffs on Canada, China and Mexico.
According to reports from Investopedia, Oil markets have been rattled in recent days by President Trump’s imposition on Tuesday of a 25 percent tariff on Canadian and Mexican goods. Trump also doubled tariffs on Chinese imports to 20 percent.
“Oil prices have been driven down from Monday’s OPEC+ decision to increase oil production starting in April. The gradual increases will unwind the production cuts the group of major oil producers committed to in November 2023.
“Lower oil and gas prices were a major focus for Trump on the campaign trail last year. He promised America would “drill, baby, drill” to reduce transportation costs and, ultimately, temper inflation. Oil prices have fallen steadily under Trump, with WTI down about 15% since his inauguration, and fuel prices have declined marginally over the past month.”
A survey by Reuters has revealed that Nigeria is pumping 70,000 barrels per day above the quote allocated by OPEC.
According to the survey, OPEC oil output rose in February, as Iranian exports held strong, despite renewed attempts by the United States of America to curb the flows.
“The OPEC nations pumped 26.74 million barrels per day last month, up 170,000 bpd from January’s revised total, the survey showed on Wednesday, with Iran and Nigeria posting the largest gains.
“OPEC’s biggest rise, of 80,000 bpd, came from Iran, the survey found, with output of 3.30 million bpd. This matched September’s figure which was the highest since 2018, the Reuters survey showed.
“The second-largest gain in output came from Nigeria where exports rose and domestic usage increased at the Dangote refinery. Nigeria is pumping 70,000 bpd above its OPEC+ target.”
Foreign news agencies reported that prices pared some losses after hitting multi-year lows earlier in the session – Brent sank to $68.33, its lowest since December 2021, and U.S. crude futures touched $65.22, its lowest since May 2023.
“Pulling prices down, U.S. crude stockpiles rose more than expected last week amid seasonal refinery maintenance, while gasoline and distillate inventories fell due to a hike in exports”, the USA’s Energy Information Administration (EIA) said.
According to the EIA, crude inventories rose by 3.6 million barrels to 433.8 million barrels in the week, far exceeding analysts’ expectations in a Reuters poll for a 341,000-barrel rise. Brent fell more than $2 after the data was released.
“The imposition of tariffs on China, Canada and Mexico by the U.S. sparked swift reprisals from each nation that increased concerns over a slowdown in economic growth and the consequent impact on energy demand,” Ashley Kelty, an analyst at Panmure Liberum, said.
JP Morgan analysts said a 100-basis-point slowdown in the U.S. GDP growth rate could potentially reduce global oil demand growth by 180,000 bpd, analysts said in a note.
For Nigerian energy sector analysts they key problem is with Nigerian government’s error in making benchmark projections on both oil price and output levels.
According to them “every year they make false assumptions and projections that are unrealistic. This, at the end of the day, leads to poor budget performance “Eventually, they will do what they always do, borrow more and increase the budget deficit”.
It’ll settle after White House chaos – Prof. Iledare
Speaking to Financial Vanguard on the global oil challenge Prof. Wumi Iledare, a Professor Emeritus in Petroleum Economics and Policy Research, said, “There seems to be higher than projected inventories of crude oil stockpile in the US because of lower than estimated demand. This is pushing pressure on the long term price trend fueled also by the wait-and-see positioning on where Trump’s propensity to tariff will lead the global economy.
“Of course, since the economy of Nigeria is too linked to government spending, there may be some adverse impact if the crude oil price continues to decline, it reduces government revenue for funding projects that matter to the economy.
“But I am confident the price will rebound after these Trump things are settled, after the tariff uncertainty and the ineptitude and chaos from the US white House”.
False budgetary assumptions leading to poor budget performance
According to oil policy expert and CEO, AHA Consultancies, Mr. Henry Adegun, the government makes the same mistake every year when making projections.
“Every year they make false assumptions and projections that are unrealistic. This, at the end of the day, leads to poor budget performance because they don’t have the fundamentals correctly. What we expect them to use are figures that are realistic.
“It has become normal for us to overestimate the barrels that we produce and then we have to borrow money to finance the budget. They rely on false projections that are unrealistic and that are not based on any facts and figures.
“Eventually, they will do what we always do, borrow more and increase the budget deficit”, he added.
Adigun explained that while the country has the potential to produce two million barrels of oil per day, he pointed out that this was not possible in the short term.
More borrowings, wider deficit looms
In a note to Financial Vanguard on the Implications of the budget benchmark assumptions, former Technical Adviser to the Nigeria Extractive Industries Transparency Initiative, NEITI, Dr Dauda Garuba, said the government would have to resort to additional borrowing to fill the gap that would be created by drop in price of oil.
Garuba noted that poor implementation of the budget would push more Nigerians into poverty and lack.
He stated: “The implication will be poor budget implementation or external borrowing. Neither of the two results is good for Nigeria, given that it will further push the country into the abyss of poverty, inequality and underdevelopment”.
Non-oil revenue may plug the gaps – Zera Advisory
On his part, Partner, Zera Advisory, Joe Nwakwue, said it was most unlikely for the government to achieve the projections on oil price and production volumes.
He stated: “It’s certainly a stretch. Most unlikely, we would achieve both volume and price targets going by current trends. “However, there has been a significant uptick in non-oil revenue generation. I hope these improvements will address the shortfall in oil revenue.
Specifically on the 2.06 million barrels per day projection, Nwakwu said: “It is very unlikely, given we are already in March. Volume growth takes time and resources, and resources and resources take time to mobilize”.
