- Control Risks Insists Forex Remains Challenge for Economy
Control Risks, an independent, global risk consulting company, has insisted that the foreign exchange (forex) crisis, which has complicated the actual value of the naira in dollar terms, remains a major setback for investments inflow into the country.
The development, according to the company, is keeping investors on the sidelines, as there are elevated fears that devaluation might catch up with investments. The company’s official also raised doubts over the source of the rising profile of the nation’s forex reserves, saying it does not inspire confidence, as its sustainability cannot be ascertained.
Africa analyst at the company, Gillian Parker, said the challenge of repatriating profits by companies is a concern and explained that holding down the devaluation option will only inflict more pains.
Senior Analyst, Daniel Magnowski, pointed out that beside the non-clarity in the source of rising reserves, there is need for predictability of actions, as it is the central focus of clients.
According to him, potential investors are interested in finding clear lines from authorities, not necessarily the frequency of interventions and its outcome on the exchange rate.
The Associate Director, Gbenga Abosede, said notwithstanding the optimism, interventions and resurging reserves, there is an obvious vulnerability to external shocks. Citing the country’s dependence on oil as a major source of forex earning, he pointed out that any investor would tend to dwell on the sustainability of policy options.
“An investor recently told me that he does not actually know the value of his investment at the moment and the concern was how the government is managing the currency and the economy as a whole. This is where investors are looking for right message, signal and commitment and recommendations.
“Investors need to predict the extent of the currency risk and uncertainties would rather discourage them,” he said, adding that it remains contradictory among the officials whether free floating or devaluation would bring more benefits to the economy.
Also, Associate Director, Timothy Cox, said Nigeria’s challenge is creating a diversion from the oil economy and harped on the need to get started with the diversification plan.
As much as the diversification plans are good, he said the situation looks hard in the immediate, given that it is a long-term programme, with infrastructure challenges like power, while there are urgent needs.
He admitted that the country’s tax system is undiversified and offers potential, but reiterated the need for policy choice that would ease the forex issues. Senior Partner, West Africa, Tom Griffin, said beside the forex exchange concerns, investors with interest in agriculture still has security issues to contend with.
He explained that the emergence of Boko Haram, herdsmen and Niger Delta militancy occupying the agricultural zones, it would now take a new risk calculation for investor to venture into the areas.
Senior Partner, Chris Torrens, admitted that investment potential and growth opportunities in sub-Saharan Africa is enormous, but raised concern on the global risks, particularly the uncharted United States policy direction for the region.
The uncertainty in U.S. foreign policy raises a lot of concern on its commitment to the region in terms of trade and aids and that would certainly have a significant impact in sub-Saharan Africa.
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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