Crude Slump Threatens 2025 Budget, Local Refineries

Nigeria’s 2025 budget faces potential risks as crude oil prices drop below the projected $75 per barrel. The decline, along with a recent fall in average daily crude oil production, could also impact local refineries such as Dangote.

According to oilprice.com, Brent crude stood at $70.73 on Wednesday, while West Texas Intermediate (WTI) was $67.57. Reuters reported that these were the lowest closing prices for Brent and WTI since December 2024.

The drop follows a decision by the Organization of Petroleum Exporting Countries (OPEC+), which includes Russia, to proceed with a planned oil output increase in April.

While lower crude prices may benefit the average Nigerian by potentially reducing petrol and diesel costs, they pose a major concern for the Federal Government, as they threaten the revenue projections for the 2025 budget.

The Federal Government set a minimum crude oil price of $75 per barrel in the 2025 budget, but recent trends have fallen short of this target. Although crude prices briefly rose above $80 in January, they have since declined.

The budget is based on a $75 per barrel benchmark and an ambitious production target of 2.06 million barrels per day (mbpd). Oil revenue is expected to contribute approximately N19.60tn, accounting for 56% of the projected N34.8tn total revenue, highlighting Nigeria’s heavy dependence on oil for fiscal stability.

However, with crude prices falling and the country’s average daily crude and condensate production dropping from 1.7mbpd in January to 1.6mbpd in February, the revenue projections may no longer be realistic.

Despite falling oil prices, Nigeria may still generate significant revenue from foreign exchange earnings, as the naira remains about N100 above the projected N1,400/$1 exchange rate.

Beyond the potential shortfall in oil revenue, declining crude production could also affect supply to the Dangote Petroleum Refinery and other local refineries. Unless the government boosts production in the coming months, meeting domestic refining demands may become a challenge.

Speaking on the naira-for-crude deal on Monday, NNPC Ltd. spokesperson Olufemi Soneye stated that the first phase of the agreement would end in March 2025, with future supply subject to crude availability.

“The contract for the sale of crude oil in naira was structured as a six-month agreement, subject to availability, and expires at the end of March 2025. Discussions are ongoing to establish a new contract,” he said.

Soneye further disclosed that since the deal began in October 2024, 48 million barrels of crude have been supplied to Dangote Refinery. In total, 84 million barrels have been provided since the refinery started operations in 2023.