The Federal Government plans to supply up to 400,000 barrels of Nigerian crude oil daily to the Dangote refinery as part of its naira-for-crude agreement, according to a report from Bloomberg released on Monday.

This development is anticipated to occur over the next two months, resulting in a total of 24 million barrels of Nigerian crude being delivered between October and November 2024.

The increase in processing capacity is likely to have significant effects on both the refinery's operations and the local oil sector, potentially reshaping the region's import and export dynamics. This announcement follows the Federal Government's confirmation that the naira-for-crude arrangement has officially begun.

Additionally, the Nigerian National Petroleum Company Limited is expected to initiate crude oil supplies in naira to the Dangote Petroleum Refinery this week, with three other refineries also preparing to commence the production of Premium Motor Spirit.

As per cargo allocations analyzed by Bloomberg News, Dangote's growing dependence on local feedstock is projected to disrupt the Atlantic oil market by significantly reducing Nigeria's crude exports.

The refinery, which has a capacity of 650,000 barrels per day—making it the largest in Africa and Europe—will account for 13 to 14 shipments from Nigeria's usual monthly allocation of around 50 cargoes.

Ronan Hodgson, a London-based analyst at FGE, noted that the West African crude market is expected to become "substantially tighter" in the fourth quarter due to the supply directed to Dangote, with potential reductions in Nigerian exports falling below 1 million barrels per day.

However, some shipments in the upcoming two months may face delays, as October's schedule already includes two cargoes postponed from September. Nevertheless, the planned volume is considerably higher than the average of 255,000 barrels per day of Nigerian oil that Dangote processed in the first half of the year, as reported by Bloomberg.

Dangote is currently operating at 60-70 percent capacity and is expected to achieve full operational capacity within a few months, as stated by Vartika Shukla, Chairman of Engineers India Ltd., last month.

Recent reports indicate that Dangote has been reducing its purchases of U.S. crude, according to market traders. Earlier this year, the refinery imported millions of barrels of WTI Midland, but later resold a portion of that oil and abandoned plans for further purchases.

Last month, the Nigerian National Petroleum Corporation reached an agreement with Dangote, allowing the state-owned energy company to supply crude in exchange for exclusive distribution rights of the refinery's essential gasoline output.

If Dangote continues to increase its production in the upcoming months, Nigeria may finally achieve its long-desired objective of reducing expensive oil product imports.

"If the refinery operates at higher capacities, the demand for gasoline and diesel imports in the West African market will diminish rapidly," noted Hodgson from FGE.