- CBN to Sell $500m FX Forwards to Meet Manufacturers’ Pent-up Demand
Desirous of ensuring that manufacturers get the required foreign exchange (FX) for the importation of critical raw materials as well as meeting the pent-up demand for the greenback, the Central Bank of Nigeria (CBN) will tomorrow sell $500 million through FX forwards to banks, for onward sales to their customers.
The move, which is also aimed at boosting economic activities in the country, would cater to some of the FX demand of manufacturers that want to import plants and machinery, raw materials and agriculture equipment.
A top official of the CBN, who disclosed this yesterday, said banks were notified last week and given till noon today to send the list of FX requests from their customers in the manufacturing sector.
“The FX forwards are specifically targeted at the manufacturing sector,” the source said in a telephone chat.
In fulfillment of its pledge to continue to support critical sectors of the economy, the CBN about a fortnight ago allocated $314 million to banks to sell to their customers in the manufacturing, aviation and some other critical sectors of the economy through Special Secondary Market Intervention Retail Sales (SMIS).
The central bank also last week settled $270.6 million in notional value of the matured October 26, 2016 futures instrument.
In line with the trend since the introduction of the OTC FX futures, the central bank issued a new 12-month tenor instrument (October 25, 2017) worth $1 billion at N258.50/US$1.00 to replace the maturing instrument.
Commenting on the availability of FX to manufacturers yesterday, the Chairman of Sosaco Nigeria Limited, the makers of the popular Gino tomato paste brand, Mr. Francis Ogboro told THISDAY that there was a significant improvement in dollar supply in the country, pointing at the recent policies by the CBN.
Ogboro, who noted that although the FX situation was still far from what manufacturers in the country would want, he admitted that the situation had improved considerably from what obtained a few months ago.
“We are encouraged by the recent improvement in FX supply. It has improved from the stagnant situation that used to be the case in the past. One of my companies just succeeded in procuring FX from the 90-day auction and that took a lot of pressure off our operation and has helped us to keep our machines running and our people employed.
“The CBN policy, which mandates the allocation of 60 per cent of available FX to manufacturers, I believe, has helped to improve the situation.
“While we ask for more efforts to be made by the CBN and the federal government, we want to state that we are happy with the improvement we have noticed so far,” he said.
Also, the Group Managing Director of Flour Mills of Nigeria Plc, Mr. Paul Gbadebo, while stating that the intervention by the CBN on its directive to banks to give 60 per cent of FX allocations to manufacturers had not really come to fruition, he added: “However, in the last one week, the CBN has been making interventions which although have been helpful, have not covered much. It has not even taken care of our backlog of Letters of Credit (LCs).
“We are however just hopeful. CBN has done two interventions in the last one week which has helped but if it can continue, then we may begin to climb out of the huge deficit and try to make a head way.”
On its part, the Manufacturers Association of Nigeria (MAN) yesterday blamed the commercial banks for the poor allocation of FX to its members.
The President of MAN, Dr. Jacobs Udemba, said that banks were not cooperating with the CBN to ensure that it achieves its objective.
The CBN, last August, directed commercial banks and other authorised dealers in the FX market to ensure that they channelled 60 per cent of the total FX purchases from all sources (interbank inclusive) to end users strictly for the importation of raw materials, plants and machinery.
The central bank had said it took the decision following its review of returns on the disbursement of FX and observed that a negligible proportion of FX sales were being channelled towards the importation of raw materials for the manufacturing sector.
But the MAN president said that banks had not been adhering to the directive, adding that as a result of this, some of its members have remained frustrated.
“The fact is that FX is scarce and there is not enough to go round. The central bank has shown commendable commitment to ensuring manufacturers get FX for their business activities and the recent policy of the Bank which mandates that 60 per cent of the total FX should be allocated to the manufacturers is clear evidence of the commitment of the CBN to local manufacturers.
“But the money deposit banks don’t seem to be cooperating to make the policy achieve its goal.
“The CBN came up with this well-intentioned policy that mandates that 60 per cent of available foreign exchange be given to manufacturers but the banks are not cooperating. They are not implementing this policy.
“The CBN also recently set aside $300 million for the agriculture, manufacturing and the aviation sectors. This also goes to show the commitment of the central bank.
“But for all these to work and lead to the attainment of intended objective, the money banks must cooperate,” Udemba maintained.
Brent Crude Rises to $69 on IEA Report
Oil prices rose after the release of the International Energy Agency’s (IEA) closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.
Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.
The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.
However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.
Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.
“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.
In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.
“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.
The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.
OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply
The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.
This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.
According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.
The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.
OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.
The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.
On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.
Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.
On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.
This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.
However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.
“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.
The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.
Oil Rises Over Concerns of Fuel Shortages
Oil prices rose on Tuesday, as lingering fears of gasoline shortages due to the outage at the largest U.S. fuel pipeline system after a cyber attack brought futures back from an early drop of more than 1%.
Benchmark gasoline futures prices rose 1 cent to $2.14 a gallon.
On Monday, Colonial Pipeline, which transports more than 2.5 million barrels per day (bpd) of gasoline, diesel and jet fuel, said it was working to restore much of its operations by the end of the week.
“Right now there’s a generalized anxiety premium being built into prices because of Colonial and it’s keeping a floor under the market,” said John Kilduff, partner at Again Capital LLC in New York.
Fuel supply disruption has driven gasoline prices at the pump to multi-year highs and demand has spiked in some areas served by the pipeline as motorists fill their tanks.
Traders booked at least four tankers to store refined oil products off the U.S. Gulf Coast refining hub after a cyber attack that knocked out the pipeline, shipping data showed on Tuesday.
North Carolina, the U.S. Environmental Protection Agency and Department of Transportation issued waivers allowing fuel distributors and truck drivers to take steps to try to prevent gasoline shortages.
OPEC on Tuesday raised its forecast for demand for its crude by 200,000 bpd and stuck to its prediction of a strong recovery in global oil demand this year as growth in China and the United States counters the coronavirus crisis in India.
Meanwhile, the rapid spread of infections in India has increased calls to lock down the world’s second-most populous country and the third-largest oil importer and consumer.
India’s top state oil refiners have already started reducing runs and crude imports as the new coronavirus cuts fuel consumption, company officials told Reuters on Tuesday.
On the bullish side for crude, analysts are expecting data to show U.S. inventories fell by about 2.3 million barrels in the week to May 7 after a drop of 8 million barrels the previous week, a Reuters poll showed.
Gasoline stocks are expected to have fallen by about 400,000 barrels, analysts estimated ahead of reports from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday.
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