A financial service company, Vetiva, says despite the efforts by the Organisation of Petroleum Exporting Countries to unwind production caps, Nigeria’s crude output has fallen below expectation.
The company in its half-year economic outlook titled “A strange labyrinth”, cited operational and security challenges as the reason for the development.
An oil & gas analyst at Vetiva, Victoria Ejugwu, expressed worries that while oil prices have soared higher, the industry continues to contract due to underproduction.
“Despite the fact that OPEC has been unwinding production caps, Nigeria’s crude output has fallen below expectation. This has been due to some operational problems, as well as issues stemming from insecurity. Given this, our outlook for the country’s production is somewhat cautious, and do not expect a significant deviation from current production levels. While oil prices have soared higher, the industry continues to contract, due to underproduction. Given this, we anticipate further contraction in Q3’22 that is, -7.00perctn and a marginal 0.1percent growth in Q4’22”
Speaking on the downstream sector, Ejugwu highlighted the impact of petrol price regulation on profitability margins.
The oil and gas analyst predicted that the downstream players would continue to see low margins in the coming months.
“With the oil price rally we have seen this year, the Nigerian government continues to maintain subsidy payments, keeping PMS retail pump price at N165/litre. As such, gross margins of about five per cent from PMS sales have remained thin. Although the enactment of the Petroleum Industry Bill is supposed to bring about market deregulation, however, given that the general elections are around the corner, full deregulation is not expected in the near term. On this note, downstream players would continue to see low margins in the coming months”
She however projected that Brent price would average $105/bbl for the full year.
Vetiva’s projection for Brent price is supported by continuous recoveries in global oil demand as well as slower supply growth from OPEC amid production hitches from its members.
Ejugwu added, “The oil market may continue to face tightness given low supply prospects and soaring demand as such, prices are expected to remain elevated”
She, however, noted that a significant downside risk to oil prices remains the possible reemergence of the virus.