Lower oil prices: Is Nigeria’s 2025 budget at risk?

As oil prices continue to fluctuate, there are growing concerns about the impact on Nigeria's 2025 budget, which has been pegged to $75 per barrel. Analysts at Citi predict that Brent crude could hover around $60 a barrel in the second half of the year, while Goldman Sachs anticipates a drop to the low-to-mid $60s by the end of 2026 if OPEC and allies increase oil supply for the next 18 months. This forecast poses significant challenges for the Nigerian economy heavily reliant on oil revenue. In a recent interview with CNBC Africa, Kelvin Emmanuel, CEO of Dairy Hills, discussed the potential risks and dynamics affecting oil prices. Emmanuel highlighted the upcoming increase in crude oil output by OPEC and its allies, which could further drive down prices. He expressed doubts about Nigeria's ability to sustain its 2025 budget amidst these geopolitical realities. Emmanuel pointed out that US oil producers are convening to address pricing concerns with a break-even range of $50 to $60 per barrel. The proposed plan to drill 30 million more barrels raises questions about supply and demand dynamics. He raised concerns about Nigeria's fiscal deficit, projected at $18.9 trillion for 2025, and the government's reliance on Forward Sale Agreements (FSA) to bridge the funding gap. Nigeria, a leading oil producer in Africa, faces additional challenges in the energy sector. The Nigeria Liquefied Natural Gas (NLNG) has encountered disruptions, leading to a 40% decline in output due to gas feedstock shortages. Emmanuel emphasized the need for strategic reforms in the oil and gas industry to enhance production capabilities and revenue generation. Moreover, the conversation shifted to local dynamics affecting fuel prices in Nigeria. Oil marketers have projected a pump price of 800 Naira per litre, prompting discussions on market regulations and product specifications. Emmanuel raised concerns about the quality of imported petrol, emphasizing the need for compliance with regional standards set by ECOWAS. He questioned the fairness of allowing high-sulfur petrol imports to compete with low-sulfur blends, impacting market competition and consumer welfare. Amidst these challenges, Emmanuel highlighted the urgency for the Nigerian government to reassess its budgetary strategies and prioritize critical reforms in the energy sector. As oil and gas remain fundamental to Nigeria's economy, sustainable policies and investments are essential to navigate the evolving energy landscape and mitigate financial risks. The 2025 budget stands at a crucial juncture, requiring proactive measures to address the complex interplay of international market trends and domestic industry dynamics.