Assessing West African Crude Market Vulnerabilities Amid Dwindling Demand and Oversupply Risks

The West African crude oil market is caught in a paradox: while Nigeria and Angola remain among the continent's largest producers, their domestic and international markets are increasingly defined by stranded cargo volumes, weak tender demand, and macroeconomic fragility. For investors, the region's oil sector presents a complex web of risks, where oversupply coexists with underutilized refining capacity and fiscal instability. This analysis evaluates the near-term investment risks in Nigeria and Angola, focusing on structural inefficiencies, regulatory failures, and broader economic pressures that threaten to undermine returns.

Nigeria: A Tale of Stranded Crude and Regulatory Paralysis

Nigeria's oil sector is a study in contradictions. Despite producing 1.78 million barrels per day (bpd) in 2025, the country has over 60 million barrels of unsold crude floating on the high seas. This staggering figure reflects a systemic failure to enforce domestic refining obligations under the Petroleum Industry Act (PIA). International Oil Companies (IOCs) have circumvented local refineries, selling crude directly to foreign traders who resell it back to Nigeria at a premium of $5–$6 per barrel. The result is a self-inflicted crisis: refineries starved of feedstock and forced to import crude from the U.S., Angola, and Algeria.

The Dangote Refinery, Nigeria's flagship project with a capacity of 650,000 bpd, epitomizes this irony. While it has boosted domestic refining capacity, it now sources 70% of its crude from abroad, spending $8.56 billion over six months to import 122.4 million barrels. This outflow of capital exacerbates Nigeria's foreign exchange shortages, with the naira projected to close 2025 at N1,662 per dollar. Meanwhile, the Nigerian National Petroleum Company (NNPC) continues to underperform, supplying only 300,000 bpd to refineries—a fraction of the Dangote refinery's needs.

Nigeria's macroeconomic backdrop compounds these challenges. GDP growth is forecast at 3.4% in 2025, driven by the services sector, but public debt remains a critical risk. The International Monetary Fund (IMF) has warned that high deficits and debt levels leave the economy vulnerable to external shocks. Inflation, though declining from 31.4% in 2024 to 23.7% in April 2025, remains elevated, pressuring households and businesses. For investors, the combination of regulatory inertia, currency instability, and fiscal fragility creates a high-risk environment.

Angola: Stagnant Production and Reluctant Diversification

Angola's oil sector faces its own set of challenges. Production has halved since 2008, with output now at 1.03 million bpd. Exports in Q1 2025 fell 13.5% year-on-year, with China accounting for 63.8% of crude shipments. While the government has embarked on a downstream expansion plan—including the Cabinda Refinery (30,000 bpd) and the Lobito Refinery (200,000 bpd)—progress is slow. The Cabinda project, for instance, has already exceeded its initial $500 million budget due to inflation and logistical delays.

Angola's reliance on oil remains acute, with the sector contributing 75% of government revenues. Yet, refining capacity is insufficient to meet domestic demand, forcing the country to import $2.16 billion worth of refined products in 2022. The government's push to reduce fuel subsidies and expand refining capacity is commendable, but structural bottlenecks—such as bureaucratic inefficiencies and foreign exchange constraints—hinder progress.

Macroeconomically, Angola's outlook is cautiously optimistic. GDP growth is projected at 3.5% in 2025, supported by non-oil sectors like agriculture and construction. However, the National Bank of Angola's efforts to stabilize inflation and the kwanza are underpinned by fragile global demand for oil. With Brent crude averaging $75.73 per barrel in Q1 2025, Angola's export revenues are vulnerable to further price declines.

Investment Risks and Strategic Considerations

For investors, the West African oil sector presents three key risks:
1. Oversupply and Regulatory Inaction: Stranded crude in Nigeria and Angola reflects a failure to enforce domestic refining mandates. This undermines the economic rationale for new refining projects and erodes investor confidence.
2. Currency and Fiscal Volatility: Nigeria's naira and Angola's kwanza remain under pressure, with foreign exchange interventions draining reserves. High public debt in both countries amplifies the risk of fiscal slippage.
3. Demand Diversification Challenges: Weak tender demand for Nigerian crude, coupled with Angola's reliance on a few key markets, exposes the region to sudden shifts in global trade flows.

To mitigate these risks, investors should prioritize:
- Currency Hedging: Given the volatility of the naira and kwanza, hedging strategies are essential to protect against exchange rate shocks.
- Diversification into Non-Oil Sectors: Both countries are expanding agriculture, manufacturing, and infrastructure. These sectors offer more stable returns than the oil-dependent economy.
- Engagement with Regulatory Reforms: Investors should monitor progress on enforcing domestic refining obligations and improving transparency in oil allocation.

Conclusion

The West African crude market is at a crossroads. While Nigeria and Angola possess significant oil reserves, their inability to convert these into sustainable economic growth highlights systemic weaknesses. For investors, the path forward lies in balancing exposure to the region's energy assets with strategies to mitigate regulatory, fiscal, and demand-side risks. As global oil markets evolve, the ability to adapt to these challenges will determine the resilience of investments in West Africa's oil sector.