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By Uche Usim
Global oil prices fell below levels critical to Nigeria’s fiscal planning on Wednesday, as fears of an oversupplied market combined with renewed geopolitical tensions to drag investor sentiment and deepen volatility in crude markets.
Brent crude slid toward $64 per barrel, dipping below Nigeria’s 2026 budget benchmark of $64.85, while US West Texas Intermediate (WTI) traded below the psychologically important $60 mark. The decline reflects mounting concerns that global supply may outstrip demand in the near to medium term, according to Bloomberg.
The sell-off was driven by a toxic mix of geopolitical uncertainty and expectations of sustained high output from major oil-producing countries. Market participants are increasingly uneasy that fresh barrels could flood the market at a time when demand growth remains fragile, particularly across advanced economies.
That bearish mood is being reinforced by signals from the International Energy Agency (IEA), which is due to release its monthly oil market outlook later on Wednesday. Traders are bracing for further confirmation that oversupply risks could keep prices under pressure for longer.
IEA Executive Director Fatih Birol recently warned that the market could be facing an extended period of weakness. Speaking at a panel during the World Economic Forum in Davos, Birol said that for “at least three to four years, we may well see downward pressure on oil and gas prices because of the huge amount of supply coming from the US and some other countries.”
Attention is also turning to Venezuelan crude exports, which could be redirected following recent US interventions. Any increase in Venezuelan supply would add more barrels to an already saturated market, worsening the imbalance between supply and demand.
Despite the broader bearish outlook, crude’s prompt spreads remain in backwardation, a structure that typically signals near-term tightness in physical markets. This suggests that while supply concerns dominate longer-term sentiment, pockets of short-term demand strength still exist.
For Nigeria, the implications are significant. Africa’s largest oil producer relies heavily on crude for government revenue and foreign exchange earnings, leaving public finances highly exposed to price swings. Prolonged weakness in oil prices could strain budget execution, external reserves, and exchange rate stability.
The Federal Executive Council (FEC) has set a 2026 oil price benchmark of $64.85 per barrel alongside an ambitious production target of 2.6 million barrels per day (mbpd). However, for budgeting purposes, a more conservative output level of 1.8 mbpd has been assumed, reflecting long-standing challenges such as oil theft, pipeline vandalism, and chronic underinvestment in upstream assets.
Historically, periods of high oil prices have supported stronger GDP growth and improved fiscal outcomes for Nigeria. Conversely, lower prices tend to widen budget deficits, weaken foreign exchange inflows, and complicate macroeconomic planning.
Market jitters were further amplified by comments and actions from US President Donald Trump related to Greenland, which unsettled financial markets and raised fresh questions about the stability of the US–EU alliance. Ahead of his expected address at Davos, the US administration threatened 10 per cent tariffs on eight European countries over the dispute, dampening risk appetite across asset classes, including oil.
If global crude prices remain below Nigeria’s benchmark, policymakers may face difficult fiscal trade-offs in 2026. Budget deficits could widen, borrowing needs may rise, and capital expenditure could come under pressure.
Nigeria’s vulnerability is underscored by recent data showing that the fiscal deficit surged to N13.51 trillion in 2024, breaching the deficit-to-GDP limit set by the Fiscal Responsibility Act of 2007. With supply-demand dynamics and geopolitics still in flux, markets will be closely watched for clues on where oil prices head next.
