A new prediction by Citi suggesting that Brent crude prices could fall to $60 per barrel by the end of the year would mean increased challenges for Nigeria’s economic outlook.
A substantial shortfall in anticipated revenues could widen Nigeria’s fiscal deficit, resulting in cuts to public spending with current production at this rate and oil prices falling below $60 per barrel.
From a peak of $115 on May 1, 2026, Brent crude is currently trading around 72 dollar per barrel.
Nigeria plans with an assumption of oil benchmark of $64.85 per barrel in its 2026 budget, it now looks unsafe on paper, and historically, the country cannot reliably pump up to 1.84 million barrels per day. Lower volumes and a fall in price simply weaken the country’s foreign exchange earnings; oil premiums are no longer available to build Nigeria’s foreign reserves due to a calm market.
The deficit of Nigeria’s N23.85 trillion in its 2026 budget will likely be financed heavily by foreign and domestic borrowing, and thus also worsen a rising domestic debt service bill
Earlier in the year, global crude prices had rallied amid military tensions and shipping disturbances at the Strait of Hormuz.
Normal maritime activities through the Strait of Hormuz have resumed with the ceasefire negotiated by the US and Iran. As these geopolitical price premiums fade, primarily due to weaker demand from China and global oversupply, they will again set the agenda and send Brent crude from over $80 per barrel down to $60 as predicted by Citi, adding to a rising tide of pessimistic views on the global crude market.
The risk of oil prices has diminished with a de-escalation of hostilities, and even as supply disruptions were at their worst, European powers are ready to accept payment for vessels to transit the world’s busiest shipping channel. Brent oil has slumped about 30% in the second quarter and lost all the gains made during the conflict.
- “Fundamentals are rapidly reasserting themselves,” said a note by Citigroup Inc. Strategists led by Francesco Martoccia.
- “Shipping flows are normalizing, Chinese buyers remain absent, physical crude markets have weakened sharply, and inventories have drawn far less than expected. Some leading European powers now understand that they may need to agree to pay transit fees to Iran and Oman to use the Hormuz route to continue to have access to oil and products,” he added.
Strait of Hormuz sees increased activity
Shipping activity in the Strait of Hormuz, a narrow passage connecting the Persian Gulf with the Gulf of Oman, had picked up after ships received assurances that safe passage would be provided. The global energy market is returning to its usual equilibrium, and the return of supplies will add barrels to refiners already covered by alternative supplies. This resulted in a swift drop in prices as Brent crude – a measure of global oil – fell 30 percent during the second quarter of the year, nullifying all gains made during the conflict.
- “The initial period is expected to be volatile given that shipping lines of re-balance and insurance markets react while working through any residual capacity constraints”, according to the analysts.
- “The fact that orderly transit, increased volumes, and re- establishment of normal shipping patterns appear to be resuming implies that operators consider the current risk level more manageable than unmanageable.”
Goldman Sachs highlighted that the oil market will swing back to a glut following the end of the Iran war and the return of the Hormuz shipping lane.
Morgan Stanley also lowered its oil outlook twice this week on the prospects of a surplus.
Brent crude stood at slightly over $72 per barrel on Friday and last traded at below $60 a barrel in January. “We continue to advocate selling into any summer rallies, and our outlook is for Brent to trade between $60- $65 a barrel at year-end,” according to Citi’s analysts. Iran and the US ended a war that began in late February after agreeing on a memorandum of understanding to halt hostilities while negotiations aim for a long-term accord. The waterway connects Persian Gulf producers with international markets and suffered a dual blockade during the Iran- US confrontation.
