Global oil prices fell below levels critical to Nigeria’s fiscal planning on Wednesday, as concerns over an oversupplied market combined with renewed geopolitical tensions to weigh on investor sentiment, Nairametrics reported.
The decline comes amid heightened volatility in crude markets, driven by fears that global supply could outpace demand in the near to medium term, Bloomberg reports.
Brent crude dropped toward $64 per barrel, falling below Nigeria’s 2026 budget benchmark of $64.85, while U.S. West Texas Intermediate (WTI) traded under $60 per barrel.
Analysts say the slide was fuelled by a mix of geopolitical uncertainty and expectations of continued strong output from major oil producers.
The market’s bearish tone is reinforced by signals from the International Energy Agency (IEA), which is scheduled to release its monthly oil market outlook later on Wednesday. Concerns about oversupply and sustained downward pressure on prices are mounting.
IEA Executive Director Fatih Birol said during a panel at the World Economic Forum in Davos 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.”
Traders are also closely monitoring Venezuelan crude exports, which could be redirected following recent U.S. interventions, potentially adding excess barrels to an already saturated market.
Despite this, crude’s prompt spreads remain in backwardation, suggesting near-term tightness even amid broader bearish sentiment.
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The combination of oversupply risks and geopolitical tensions has created a fragile outlook for oil prices in 2026. Nigeria, heavily reliant on oil, is particularly sensitive to price swings.
Crude accounts for the bulk of government revenue and foreign exchange earnings, meaning prolonged weakness in prices can strain public finances.
The Federal Executive Council (FEC) has set a 2026 oil price benchmark of $64.85 per barrel and an ambitious production target of 2.6 million barrels per day (mbpd).
For budgeting purposes, a more conservative production level of 1.8 mbpd is assumed, reflecting persistent challenges such as oil theft, pipeline vandalism, and underinvestment.
Historically, higher oil prices support stronger GDP growth and fiscal performance, while lower prices increase pressure on reserves, the exchange rate, and budgetary planning.
Market jitters intensified following U.S. President Donald Trump’s remarks and actions concerning Greenland, which unsettled financial markets and raised questions about the U.S.–EU alliance.
The dispute has dampened risk appetite across asset classes, including oil. Ahead of his expected Davos address, the U.S. administration threatened 10% tariffs on eight European countries over the Greenland dispute.
Despite short-term supply tightness in parts of the physical oil market, overall sentiment remains bearish, keeping pressure on global crude prices and Nigeria’s 2026 fiscal outlook.
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Image Credit: The Guardian Nigeria News
