Goldman Sachs predicts prices to exceed $90/pb
The possibility of Federal Government achieving N19.5 trillion oil revenue target for the year rose with the soaring prices of crude oil over Middle East crisis.
Oil prices spiked high at the weekend after Israel executed a large preemptive strike on Iran, heightening concerns of a wider conflict in the Middle East and significant disruptions to oil supply routes.
Brent Oil Futures for July delivery gained over nine per cent, trading at $75.15 per barrel (pb), the highest price since early February.
West Texas Intermediate (WTI) crude futures increased to $74 per barrel, posting a 10 per cent increase at their peak.
The Nigerian naira outlook has brightened as crude oil passed the Federal Government benchmark for the first time. The benchmark for Crude oil under the FG Budget was $75 a barrel.
Though Iran’s oil infrastructure remains untouched for now, traders have begun pricing in heightened risk to future supply. Though Iran’s oil infrastructure remains untouched for now, traders have begun pricing in heightened risk to future supply.
Oil market watchers are also bracing for further escalation. Analyst Daan Struyven at Goldman Sachs raised his short-term price target, warning that the conflict could briefly cut 1.75 million bpd of Iranian oil, pushing Brent above $90, but expects prices to fall back to the $60s by 2026 as supply recovers.
Analysts at Afrinvest West Africa, said that Federal Government’s projected oil revenue of N19.5 trillion will be on track.
They highlighted that based on previous macro commentary, the Federal Government needs to deploy a more prudent framework that prioritises sustainable budget growth.
There is also a high possibility that budget deficits for the year could reduce below N17 trillion, reducing total debt stock.
To turn sustain revenue surge, the analysts recommended some measures the Fed Govt can take to sustain the improved macroeconomic environment.
Firstly, with the increase in revenues and substantial reduction in PMS, Electricity and FX subsidies the Fed Govt should be deploying more resources towards critical infrastructure development while also tackling insecurity headlong to support improved productivity in the agrarian communities.
Secondly, the Fed Govt needs to prioritise optimising revenue potentials by strategically using the instrumentality of the state to end crude oil theft and boost aggregate output to the target 2.06mbpd level.
Also, as recommended by the World Bank, reducing the cost of governance would be pivotal to Nigeria’s revitalisation drives, given the current disturbing level of debt profile.
While Israel has so far avoided targeting Iran’s oil terminals at Kharg Island or Iran’s major refineries such as the Abadan refinery (360,000 bpd) the Persian Star refinery (320,000 bpd) and the Isfahan refinery (370,000 bpd), the possibility of Tehran retaliating by hitting Gulf infrastructure or closing Hormuz cannot be ruled out.
Cyberattacks, proxy warfare, or missile strikes on Western military bases in the region are also on the table, according to analysts.
Still, some are skeptical the rally can last. Spare capacity from OPEC+ members like Saudi Arabia and the UAE, along with potential increases in U.S. shale output, could ease the impact of any short-term supply shock.
For now, oil markets remain volatile, with uncertainty over potential further attacks which are expected to keep traders on edge through the week.