The International Energy Agency (IEA) has warned that global oil supply may exceed demand by approximately 600,000 barrels per day (bpd) in 2025, posing a serious risk of oversupply in the market.
In its latest Oil Markets Report, the agency also downgraded its demand growth estimates for 2025, citing underwhelming consumption data and economic uncertainty.
The report signals trouble for major oil-exporting economies like Nigeria, as the Organization of the Petroleum Exporting Countries (OPEC) may respond by cutting production quotas for member nations in an attempt to stabilize the market.
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The IEA cautioned that if OPEC+ proceeds with plans to unwind production cuts beyond April, and if member countries currently exceeding their quotas do not rein in output, an additional 400,000 b/d could be added to the market.
This raises the likelihood of a significant price decline, as global oil demand has not grown as strongly as expected. The situation puts oil-dependent economies like Nigeria at risk, especially since any reduction in crude prices could further strain government revenues.
The IEA also noted that uncertainty surrounding global trade policies and potential tariffs could further distort market expectations. The agency emphasized that the scope and scale of tariffs remain unclear, and with trade negotiations continuing, it is still too early to assess the impact on the market outlook.
The IEA has cut its demand growth projections for the fourth quarter of 2024 and the first quarter of 2025, lowering its estimate to 1.2 million barrels per day (mb/d) due to weaker-than-expected consumption patterns. Despite the downgrade, the agency still projects total oil demand growth in 2025 at just over 1 mb/d, up from 830,000 b/d in 2024, bringing global consumption to 103.9 mb/d. However, this is lower than its February forecast, which predicted 1.1 mb/d growth.
Nigeria Faces Potential Revenue Shortfalls
Nigeria’s 2025 budget is built on the assumption of oil production at 2.06 million barrels per day (bpd), an oil price of $75 per barrel, and a revenue target of N36.35 trillion, with 56% expected to come from oil sales. However, Nigeria is currently struggling to produce even 1.5 mbpd, well below the 2.06 mbpd target. If OPEC decides to cut production quotas further, Nigeria’s ability to meet its revenue expectations will be severely impacted.
Compounding this challenge, the 2025 budget already has a deficit of N14 trillion, meaning that any shortfall in oil revenue will widen the funding gap, potentially forcing the government to resort to more external and domestic borrowing, and additional taxes and levies to cover the revenue shortfall.
Asia Remains the Growth Driver, But With Changing Demand Trends
The IEA predicts that Asia will account for nearly 60% of oil demand growth in 2025, with China leading the charge. However, there is a notable shift in the type of demand driving this growth. Petrochemical feedstocks will dominate oil demand in China, rather than traditional fuels. Demand for gasoline and diesel is plateauing, signaling slower growth in transportation fuel consumption.
This shift could pose additional challenges for Nigeria, as its crude oil blend is more suited for transportation fuels rather than petrochemical production.
What’s Next for Nigeria?
While diversification efforts in agriculture and manufacturing have been touted as long-term solutions, the short-term reality is that Nigeria’s fiscal stability remains heavily tied to oil prices. Any significant downturn in oil revenue could trigger new austerity measures, adding more strain to an already struggling economy.
With the IEA’s outlook painting a bearish picture for oil markets, analysts are urging Nigeria’s policymakers to closely monitor OPEC+ decisions in the coming months. If crude prices fall far below $75 per barrel, the government may be forced to revise its revenue projections downward and seek alternative funding sources.