This study investigates the impact of oil price fluctuations on manufacturing sector performance in Nigeria, with institutional quality examined as a moderating factor. Using annual time series data spanning 1981–2023, sourced from the World Development Indicators (WDI) and the Central Bank of Nigeria Statistical Bulletin, the study employs the Autoregressive Distributed Lag (ARDL) framework to capture both long-run and short-run dynamics. The Phillips–Perron (PP) unit root test confirms a mix of I(0) and I(1) series, justifying the ARDL approach, while the bounds test indicates the presence of a long-run relationship among the variables. The results reveal that exchange rate volatility consistently exerts a significant negative impact on manufacturing output in both the short and long run, while foreign direct investment inflows, dominated by oil-related activities, have a negative effect, particularly in the short run. Most importantly, institutional quality plays a critical moderating role, withevidence showing that improved governance and regulatory effectiveness enable oil price windfalls to positively influence manufacturing performance in the short run. Other macroeconomic variables, including gross capital formation, technology adoption, and interest rates, are largely insignificant. The error correction mechanism confirms a stable adjustment process towards long-run equilibrium. These findings underscore the importance of strong institutions, exchange rate stability, and investment diversification for mitigating the adverse effects of oil price shocks and leveraging oil wealth to promote industrial development. The study concludes that governance reforms remain indispensable for transforming Nigeria’s oil windfalls into sustainable manufacturing growth and broader economic diversification