Crude oil prices have fallen below $60 per barrel, raising concerns about the federal and state governments’ ability to fund the 2025 budgets estimated at N75 trillion without resorting to more borrowing.
The drop in global oil prices comes at a time when Nigeria is struggling to boost production above 1.5 million barrels per day, far below the 2.06 million barrels per day benchmark set for the 2025 fiscal plan.
Actual output hovers around 1.4 million barrels per day due to persistent oil theft, pipeline vandalism and underinvestment in upstream operations.
Both FG and states are counting on improved oil revenue to fund their ambitious budgets. The FG hopes to spend N54.99 trillion this year while the total state budgets sum up to over N25 trillion.
As of yesterday, Brent crude was trading around $60 per barrel, while Morgan Stanley joined other investment banks in revising their oil price forecast down to $62.5 per barrel.
This outlook poses a serious threat to Nigeria’s N43 trillion budget, which is predicated on a benchmark oil price of $75 per barrel and a production target of 2.06 million barrels per day.
Although Nigeria is banking on increased local refining capacity through the Dangote Refinery and modular plants, analysts say the current downturn will test the resilience of oil majors and their ability to maintain dividends and share buybacks under tighter cash flow conditions.
With crude prices below budget expectations and the threat of a projected N19.6 trillion revenue shortfall, the country may face a ballooning fiscal deficit of up to N30.79 trillion, significantly higher than the planned N13 trillion.
An analyst at RBC Capital Markets, Biraj Borkhatari, said: “Given how uncertain the environment is, investors are looking for some reassurance. The question now is which companies will cut first.”
Bank of America analysts noted that investor sentiment has been weakened by doubts over Saudi Arabia’s willingness to sustain output cuts. However, they maintained a positive outlook for firms with strong balance sheets like Shell, TotalEnergies, and Equinor.
“These firms can withstand the impact of lower oil prices without significantly reducing shareholder returns or long-term growth prospects,” they said.
Yesterday, Nigeria’s crude oil grades, Bonny Light, Forcados, and Qua Iboe were trading at around $60 per barrel. This is far below the budget benchmark.
Oil market analyst, Kelvin Adegbite, noted that Nigerian grades remain competitive, even with OPEC+ planning to increase output by 500,000 barrels per day from October 2024.
“Buyers are willing to pay a premium for Nigerian crude, especially as global demand remains strong,” he said.
The OPEC+ alliance, led by Saudi Arabia and Russia, is trying to balance market stability with increased supply amid concerns over economic slowdowns in China and Europe.
Brent futures recently dropped over one per cent to $59.70 per barrel, reflecting investor jitters over OPEC+’s production plans and unresolved global trade tensions.
Meanwhile, major international oil companies, including Shell, BP, ExxonMobil, and Chevron, have reported weaker first-quarter (Q1) earnings for 2025, citing declining crude prices, lower refining margin,s and increasing market volatility.
As of yesterday, Brent crude was trading around $60 per barrel, while Morgan Stanley joined other investment banks in revising their oil price forecast down to $62.50 per barrel.
Shell announced that its Q1 adjusted earnings fell 27.9 per cent to $5.58 billion, down from $7.74 billion in the same period last year. The drop was largely attributed to lower energy prices and a $509 million charge related to the UK’s energy profits levy.
Despite this, CEO Wael Sawan described the performance as “another solid set of results”, noting a $3.5 billion share buyback programme over the next three months and reaffirming a capital expenditure target of $20–$22 billion for the year.
BP also reported a sharp 70 per cent drop in Q1 net profit to $687 million, compared to $2.3 billion a year earlier. The company attributed the decline to weaker gas trading and falling refining margins. Revenue also dropped by four per cent to $48 billion. CEO Murray Auchincloss stated the company remains focused on maintaining operational flexibility in a volatile market.
Chevron’s Q1 profit fell 36 per cent to $3.5 billion, from $5.5 billion in Q1 2024, as production stagnated and revenues dipped to $47.6 billion.
ExxonMobil, the largest U.S. oil company, posted Q1 profits of $7.7 billion, down from $8.2 billion in the previous year. However, earnings per share of $1.76 exceeded market expectations.
The oil sector globally is under pressure from rising supply levels, particularly from the Organisation of the Petroleum Exporting Countries (OPEC), and policy uncertainty in the United States. Analysts warn that average oil prices in the second half of 2025 could drop more than 20 per cent from the 2024 average of $81 per barrel.
