..Warns Of Inflation Crisis Over Rising Oil Prices
Uche Cecil Izuora
New field development has been identified as critical to improving Nigeria’s oil production which if sustained will help the country meet its 2 million barrels daily output target.
Nigeria produced 1.67 million barrels per day of crude oil and condensate in August, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) as the country continued to sustain output above 1.5 million bpd while a fresh rise in global oil prices heightened the risk of higher inflation at home.
The August figure compares with Nigeria’s recent effort to stabilize production after a prolonged period of underperformance against its OPEC allocation.
The latest reading also keeps focus on whether Africa’s largest oil producer can build enough momentum to approach the 2 million bpd target previously flagged by the Nigerian National Petroleum Company.
Speaking on CNBC Africa, EO2 Law partner Oyeyemi Oke said the production data showed a more durable recovery over recent months.
He said Nigeria had recorded sustained production for about four months, consistently meeting its OPEC target and potentially reopening discussions over a higher quota.
Rising crude prices above $105 a barrel may lift government revenue and support oil producer earnings, but they also risk worsening inflation and fuel costs for consumers, he said.
Oke said Nigeria could move closer to 2 million barrels per day within six to 12 months if new projects come on stream.
“The results from NUPRC shows that there’s been sustainable production over the last four months, which means that we have consistently met the OPEC target,” Oke said.
He added that if new investments and fields come on stream, Nigeria could edge closer to the government’s longer-term objective. “I think with the sustained production there is a likelihood that we will hit 2 million barrels perhaps maybe within the next six to 12 months,” Oke said on CNBC Africa.
That outlook remains tied not only to domestic output capacity, but also to OPEC policy. Nigeria has previously pushed for a higher production ceiling, but those efforts were weakened when the country struggled to meet its assigned quota because of theft, pipeline sabotage and underinvestment.
Oke said the recent improvement changes that argument. If output remains firm through the end of the year, he said, Nigeria would have a stronger basis to ask OPEC for more room to pump.
The production discussion comes as oil markets absorb a fresh geopolitical risk premium. Brent crude traded above $105 per barrel after attacks on Saudi Arabian energy infrastructure disrupted the kingdom’s east-west pipeline, reviving concerns over the security of supply routes already strained by tensions involving Russia and the Strait of Hormuz.
Oke said the market had grown used to frequent price spikes over the past year, but warned that crude above $100 a barrel brings broader economic costs. While higher prices support exporters and upstream operators, he said they also intensify inflation concerns and recession risks globally.
“The prices may continue to go higher because the impact of the destruction of that pipeline is that you would see a bit of constriction when it comes to supply,” Oke said.
He described the east-west pipeline as a critical alternative to the Strait of Hormuz for transporting oil cargoes, adding that any sustained disruption there could tighten supply further. He said repeated attacks in the region would likely keep markets on edge and preserve upward pressure on prices.
For Nigeria, Oke framed the impact of higher crude prices across three constituencies: government, oil operators and consumers.
For the government, the near-term benefit is straightforward. Higher crude prices can increase receipts from royalties, taxes and direct oil sales, offering some support to public finances at a time when fiscal pressures remain elevated.
But he said the gains come with a trade-off. More expensive crude tends to feed into refined product prices, pushing up transport and commodity costs and adding to consumer price pressures across the economy.
“The good thing for government is that revenues will increase,” Oke said. “The bad thing would be that government will have to grapple with the issue of consumer price index in terms of inflation.”
For upstream companies, the price rally is more favorable. Oke said producers would benefit from stronger earnings, particularly those without significant prepayment obligations tied to future barrels.
Consumers, however, face the harshest immediate effects. Oke said rising pump prices would strain household budgets and reduce the purchasing power of the naira, especially as fuel costs ripple through the prices of other goods.
The comments also carry implications for Nigeria’s refining sector, including Dangote Refinery, as investors weigh how elevated crude prices could affect margins and valuation.
Oke said refiners would have to buy crude feedstock at higher prices, but in principle would seek to pass those costs on to end users through higher prices for refined products. On that basis, he said the business case for a large-scale refinery could remain intact, even in a high-price environment.
“The business will continue to make profits,” Oke said, while cautioning that stronger profitability would still depend on the refinery’s pricing power and market conditions.
He also said the planned public offering tied to Dangote Refinery would be significant for African capital markets. Oke described the deal as a confidence marker for both local and institutional investors, though he noted that private placement participation had not been limited to African buyers.
According to Oke, the offering signals that African markets can play a bigger role in funding major infrastructure projects. At the same time, he said the deal should be viewed in the context of broader international investor participation and the relatively small stake on offer compared with the refinery’s overall valuation.
The immediate question for Nigeria’s oil sector is whether August’s output can be sustained through the final months of the year. If production remains above 1.5 million bpd and new assets start up as expected, the country could strengthen both its revenue position and its case for a larger OPEC quota just as global supply risks keep crude markets tight.