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Oil production in Nigeria recovered from its four-decade low in September 2022 and peered above the 1mn bopd mark in October

According to the latest figures released by the International Energy Agency (IEA), oil output rose by 5.2% m-o-m to 1,010,000 bopd last month from 960,000 bopd in September. Furthermore, international oil prices recovered by 4.0% m-o-m to US$93.3 per barrel last month, which should increase some of the gains and revenue flows into the struggling domestic hydrocarbons sector.

This is only the second monthly increase in oil output since June and is relatively in line with the Q3 production figures. Nevertheless, while production recovered from September's four-decade low, oil output in October was still down 17.9% y-o-y. Furthermore, production is significantly weaker than historical levels. Output has declined by 26.8% since January 2022 and is nowhere near the pre-pandemic level of 1,710,000 bopd recorded in 2019. Moreover, with the IEA maintaining Nigeria's sustainable oil production capacity estimate at 1,300,000 bopd, after lowering it from 1,500,000 bopd in Q2, the country is far from reaching its OPEC production quota of 1,830,000 bopd.

Despite the recent uptick in production, Nigeria has failed, once again, to regain the title of Africa's largest oil producer. It is now ranked as Africa's fourth largest oil producer behind Libya, Angola and Algeria. Nigeria's hydrocarbons sector is plagued by oil supply disruptions, sabotage and theft, which have weakened production over the past year. The government has allocated more funds towards security and infrastructure upgrades. However, these plans will take time to bring about notable change.

Authorities have reported that the Dangote oil refinery, which has the capacity to process 650,000 bopd of crude oil into refined petroleum products is nearing completion. Set to be the biggest oil refinery on the continent, Dangote will have a pronounced impact on the country's hydrocarbons sector. More crude oil will be processed in Nigeria, which will allow for more expensive petroleum products to be directly exported to international markets, and for domestically produced fuel to supplement expensive imports. This should have a noteworthy impact on hydrocarbons earnings, but only within 2023 H1 at the earliest.

Source: Oxford Economics