Oil made Nigeria’ Debt Yields an offer they couldn’t refuse and they soared together.   

25 Feb 2022: The hike in crude oil put Nigeria in a very bad shape as its International debt yields spiked owing to the Russian laceration of Ukraine.

The yield on the West African country’s 2047 paper soared to 10.07% as of 14:12 p.m. on Thursday, the highest since May 2020. It has been rising steadily for six days, the longest streak since November 2021. The yield on the shorter term debt maturing 2028 rose to a record 7.99%. 

Oil’s massive surge to more than $100 per barrel for the first time in 7 years will increase the cost of fuel subsidies for Africa’s largest crude producer, which had already set aside 3 trillion naira ($7.2 billion) amid lower prices. Allocating even more to subsidies will put more stress on Nigeria’s spending shortfalls, according to the International Monetary Fund, which forecasts that the country’s deficit will skyrocket to 6.4% of gross domestic product this year from a pre-pandemic average of 4.3%.

“With the kind of prices we are seeing, obviously we are not happy about it,” Timipre Sylva, Nigeria’s minister of state for petroleum resources, told Bloomberg Television on Feb. 22.

Nigeria unfortunately imports all its gasoline, which the country’s state-owned energy company then sells at a large loss in order to keep the price for the population among the lowest in the world. This intervention abrades government revenue from oil, which in the first eleven months of 2021 was about 960 billion naira, a little over half the targeted amount.

Nigeria’s inability to meet its OPEC+ quota is not helping either as it put more pressure on the government income. Output fell last year to less than 1.5 million barrels a day of crude equivalent in December from about 1.7 million in January, according to government data. 

To offset some of the burden imposed by gasoline subsidies, Nigeria is determined to pump as much as it’s allowed under mamba’s rules. “We would like definitely to be back on track later this year,” Sylva said.

Although they will only be able to increase the output gradually “as security and technical challenges dissipate, but production will remain below the 2019 level,” it said.

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