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Nigeria Should be Worried About Debt Servicing – World Bank

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Nigeria should be worried about the percentage of its revenue that goes into servicing of debts rather than the size of the debts, the World Bank has said.

The World Bank Lead Economist for Nigeria, Mr. Khwima Nthara, said this in Washington, United States, while answering questions from journalists from several African countries through video conference to mark the release of a report on the continent’s economies entitled: ‘Africa Pulse’.

Nthara said Nigeria’s total debt profile was sustainable but added that the cost of servicing it, especially the domestic debt, was too high and out of sync with the country’s revenue profile.

He said, “Yes, debt has been on the increase, but Nigeria’s debt remains low. The debt stock has just increased from 12 per cent to 14 per cent of the Gross Domestic Product. The most important problem that Nigeria is facing is debt service. Nigeria has a large debt to revenue ratio, and largely most of the debt is domestic, which is crowding out the private sector.

“So, while Nigeria does not have a debt sustainability problem at the moment; indeed, there is an issue on how the debt is being financed. And that is why the Debt Management Office is putting in place now strategies to increase external financing.”

The cost of servicing the Federal Government’s domestic debt hit the N1tn mark for the first time in 2015.

According to the report, the Federal Government spent N1.02tn to service its domestic debts in 2015. This comprised of N25bn spent on repayment of principal and N993.13bn spent on interest payment within the year.

As of the end of December 2015, Nigeria’s total public debt stock stood at N12.6tn compared to N11.25tn in 2014. The difference represents an increase of 12 per cent (or N1.37tn) within the one-year period.

External debt accounted for N2.11tn or 16.75 per cent, while domestic debt accounted for N10.49tn or 83.25 per cent, with the Federal Government owing domestic creditors N8.54tn.

The DMO attributed the increasing cost of debt servicing to an equally increasing domestic debt profile and rising interest rate.

Answering question on the proposal to sell some national assets in order to solve the financial challenges of the Federal Government, the World Bank economist said it was difficult to take a stand until a detailed plan was in place.

“Sale of assets is an issue that is being discussed currently in Nigeria at the moment. It raises important issues, including for example, what form of sale of assets is being contemplated. It is very difficult to take a position without the details, because the authorities have made it clear that they are still considering it,” Nthara said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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