Nigeria bleeds $21m daily as output gap dents oil windfall

…FG begins direct remittance of oil revenue

…Brent may hit $120- JP Morgain

Africa’s biggest oil-producing country is forfeiting an estimated $21 million in oil revenue daily despite a surge in crude prices triggered by escalating geopolitical tensions in the Middle East, underscoring how chronic production shortfalls continue to blunt Nigeria’s windfall gains.

Brent, the benchmark of Nigeria’s crude, jumped sharply on Monday after U.S. and Israeli military forces killed Iran’s Supreme Leader, Ayatollah Ali Khamenei, over the weekend, sending shockwaves across global commodity markets.

Brent crude for April delivery rose as much as 8.7 percent to $79.28 per barrel at 6.pm Nigerian time, while West Texas Intermediate climbed 7.8 percent to $72.16. Prices were hovering around $80 later in the session, embedding a heightened geopolitical risk premium.

For Africa’s largest oil producer, the rally presents a paradox. While the price spike offers a substantial upside relative to government projections, Nigeria’s inability to meet its own output targets is eroding much of the potential fiscal relief.

“Every barrel Nigeria does not produce and sell at $85 or above is revenue permanently lost; Nigeria’s current production trajectory is improving but remains fragile,” said Afolabi Akinrogunde, a senior energy professional with over 20 years of experience across Nigeria’s oil, gas, power and renewable energy sectors.

He noted that regulators, operators, JV partners, and NNPCL must treat production maximisation as the single most urgent commercial priority from today.

“That means accelerating workovers, fast-tracking well interventions, resolving surface facility constraints, and addressing any operational bottlenecks limiting output. It also means treating security of infrastructure as an economic emergency,” Akinrogunde said.

Windfall meets oil output gap

The Federal Government’s 2026 budget is anchored on a conservative oil price benchmark of $64.85 per barrel and an ambitious production target of 1.84 million barrels per day (bpd).

However, actual production in the first quarter of 2026 has averaged about 1.58 million bpd, reflecting a persistent shortfall of roughly 260,000 bpd.

At current prices of about $80 per barrel, BusinessDay findings showed Nigeria is earning $15.15 more per barrel than assumed in the budget. Based on the actual output of 1.58 million bpd, that translates to a daily windfall of approximately $23.9 million and an annualised gain of about $8.7 billion, if prices hold steady.

Yet the production gap is offsetting nearly the same amount. The 260,000-bpd deficit, valued at $80 per barrel, implies foregone revenue of about $20.8 million per day, effectively neutralising most of the price-driven upside.

Brendon Verster, senior economist at Oxford Economics, said the immediate impact of the Iran crisis on African economies like Nigeria will be felt primarily through higher oil prices and currency pressures.

“The near-term risks to African nations are mainly confined to upswings in global oil prices and weakening exchange rates amid heightened demand for safe-haven assets,” Verster wrote. “This could drive short-term inflationary risks higher and prompt more cautious approaches by monetary authorities.”

Nigeria’s medium-term fiscal framework assumes oil prices will trend between $64 and $66 per barrel through 2028. Current price dynamics, well above those levels, could significantly improve the country’s revenue profile, provided output improves.

For oil exporters such as Nigeria, however, elevated prices represent a double-edged sword. While fiscal revenues improve, imported inflation, particularly for refined petroleum products, could rise if domestic refining capacity does not fully offset external shocks.

Nigeria exports roughly 1.5 million barrels of crude daily but has historically relied on imports for refined products.

The emergence of the Dangote Refinery, the largest single-train refinery in the world, has altered that equation, offering prospects for domestic value addition and improved trade balances.

Jide Pratt, country manager and chief operating officer at Trad Grid, said Nigeria must seize the moment by boosting production and maximising refining margins.

“Crude oil prices have gone up and will continue to go up. The first thing we need to do automatically is increase our production capacity,” Pratt said. “Once we do that, we are able, at the same time, to refine effectively.”

He pointed to the “crack spread”, the margin between crude oil input costs and refined product prices, as a key profit lever.

At sustained prices of $80 per barrel and output approaching 1.8 million bpd, refiners could capture significant spreads across products such as jet fuel, gasoline and diesel.

“Locally is where we produce our crude. Locally is where we refine it. Those are advantages that do not affect the channel called the Strait of Hormuz,” Pratt added. “Federation revenue increases, and while it increases, they need to be more judicious and accountable in how they spend it.”

FG begins direct remittance of oil revenue

As the oil price rallies, the federal government on Monday commenced the implementation of Executive Order 9 of 2026, which mandates the direct remittance of oil revenues to the Federation Account Allocation Committee (FAAC).

The move follows the inaugural meeting of the implementation committee for the executive order, held on February 26, 2026.

Wale Edun, the minister of finance and coordinating minister of the economy, said the committee reaffirmed the president’s directive that revenues accruing to the federation from petroleum operations must be handled in a manner that upholds constitutional principles, protects revenues accruable to the federation, and supports the fiscal stability of the three tiers of government.

“In line with the President’s directive, NNPC Limited shall cease, with immediate effect, the collection of the 30% management fee and the 30% frontier exploration fund deductions from profit oil and profit gas under Production Sharing Contracts (PSCs),” the statement reads.

“Additionally, all remittances of gas flare penalties into the Midstream and Downstream Gas Infrastructure Fund (MDGIF) are suspended with immediate effect, in line with the Executive Order.”

On Section 2(3) of the order, which provides for direct payments by contractors into the federation account, Edun said the committee agreed that the transition must be implemented in a manner that respects existing contractual and financing arrangements, and maintains investor confidence.

For this reason, the Committee approved a defined transition period for the operationalisation of direct payments by contractors of profit oil, royalty oil, and tax oil into the Federation Account, the minister said.

“Until the committee issues detailed guidelines, contractors will continue to remit under the current process. During the transition period, the committee will issue clear, standardised guidance to ensure an orderly changeover.”

He said the committee approved the establishment of a technical subcommittee to develop detailed transition guidelines within three weeks, and commence a review of the Petroleum Industry Act (PIA) to address structural and fiscal anomalies that weaken federation revenues.

“The Technical Subcommittee will be led by the Special Adviser to the President on Energy, and will include the Solicitor-General of the Federation and Permanent Secretary Federal Ministry of Justice, the Chairman of the Nigeria Revenue Service, and the Chairman of the Forum of Commissioners of Finance, representatives of the Minister of State Petroleum Resources, Oil, with secretarial support from the Budget Office of the Federation,” Edun said.

He added that the committee will continue to provide coordinated guidance and timely updates as implementation progresses, commending stakeholders for their cooperation in advancing efforts to ensure that Nigeria’s petroleum resources deliver measurable benefits to citizens across the federation.

LNG shock adds to market anxiety

Compounding global supply concerns, the world’s largest liquefied natural gas exporter, QatarEnergy, announced on Monday it has halted part of its production operations amid mounting regional security risks, according to traders familiar with the matter.

“Due to military attacks on QatarEnergy’s operating facilities in Ras Laffan Industrial City and Mesaieed Industrial City in the State of Qatar, QatarEnergy has ceased production of liquefied natural gas (LNG) and associated products,” the statement reads.

QatarEnergy said it values its relationships “with all of its stakeholders and will continue to communicate the latest available information.”

In 2024, LNG produced in Qatar accounted for about 20 percent of global supply through the Straits of Hormuz, which has been blocked by Iran.

The Qatar Energy production shutdown could lead to significant supply shortfalls and spike gas prices across the world.

Also, analysts at JPMorgan Chase warned that a prolonged conflict in the Gulf could push Brent prices to $120 per barrel, particularly if shipping routes face sustained disruption or retaliatory measures escalate.

In a note led by Natasha Kaneva’s commodities research head, the JPMorgan team said prices will depend on the scale and duration of supply losses, the speed at which replacement barrels or strategic reserves can be mobilised, and whether shipping through key routes such as the Strait of Hormuz remains constrained by security risks and surging insurance costs.

Though the strait has not formally closed, shipping has slowed as insurance costs spike and safety concerns mount.

JPMorgan estimated that Gulf producers dependent on Hormuz, including Saudi Arabia, the UAE, Iraq, Kuwait, Iran, Qatar, and Oman, have about 343 million barrels of onshore storage, enough to sustain around 22 days of output if exports are stranded.

If disruptions exceed three weeks, producers may be forced to curb production, tightening global supply and pushing Brent into the $100–$120 range.

The bank also notes that past regime changes in medium-to-large oil-producing countries have resulted in average price increases of 76 percent from onset to peak. (BusinessDay)