NNPC crude supply suspension to Dangote refinery impacts OPEC output in March as oil market struggles with rising uncertainty and FX woes

[dropcap]T[/dropcap]he Nigerian National Petroleum Company Limited (NNPC) has come under scrutiny after suspending crude oil deliveries to the Dangote Refinery and other domestic plants, a move that contributed to a decline in the Organisation of the Petroleum Exporting Countries’ (OPEC) overall output in March.

Also read: NNPC raises petrol prices amid market shifts

A recent survey by Reuters revealed that OPEC’s oil output fell by 110,000 barrels per day (bpd) in March, dropping to 26.63 million bpd.

Nigeria, Iran, and Venezuela were the largest contributors to the cut, each posting a reduction of 50,000 bpd. In Nigeria’s case, the decline stemmed from reduced crude allocations to domestic refineries, despite an increase in exports.

According to S&P Global, the NNPC had allocated seven cargoes, approximately 245,000 bpd, to the Dangote Refinery for April.

However, the deliveries were delayed due to disagreements over payment terms. This accounts for nearly 7.2 million barrels over a 30-day period.

“The delay in crude delivery is linked to the failure of both parties to agree on the terms of payment,” the report stated, adding that the previously operational naira-for-crude agreement appears to have been shelved.

NNPC initially began the naira-for-crude deal in October 2024, allowing the Dangote Refinery to receive crude in exchange for naira as a means to stabilise local fuel prices.

However, as the six-month arrangement expired, tensions have surfaced over the refinery’s obligation to sell refined products in naira while incurring costs in US dollars.

“By pegging prices to dollar benchmarks and converting at the point of sale, we were exposed to market volatility,” a Dangote executive disclosed, expressing doubt over the deal’s renewal.

Furthermore, reports indicate that the credit facilities previously extended to Dangote have now been withdrawn. The refinery is now expected to provide letters of credit prior to crude cargo deliveries. An NNPC official declined to comment, noting that “transactions are not conducted in the open.”

Adding to the NNPC’s mounting challenges are growing incidents of pipeline sabotage and security instability in Rivers State, further complicating Nigeria’s production outlook.

The agency is also grappling with a foreign exchange shortage, compounding the operational and financial pressures on both NNPC and the Dangote Refinery.

Meanwhile, the global oil market has shown signs of weakening. Brent crude slipped to $63.23 per barrel, while WTI dropped to $59.82—well below Nigeria’s 2025 budget benchmark of $75 per barrel.

Experts warn that the falling prices could destabilise government revenue projections, although consumers might benefit from reduced pump prices.

Market participants also noted sluggish demand for Nigerian crude in April, with around 15 April-loading cargoes still unsold.

This follows increased competition from cheaper grades like US WTI, Caspian CPC Blend, and other Mediterranean alternatives preferred by European buyers.

In a bid to stabilise Africa’s refining sector, the African Export–Import Bank has announced a $3 billion facility aimed at financing refined product purchases and boosting refining capacity across the continent.