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With Foreign Reserves Rising 86% in 17 Months, Analysts Credit CBN’s FX Policy, Oil Prices



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  • With Foreign Reserves Rising 86% in 17 Months, Analysts Credit CBN’s FX Policy, Oil Prices

In 17 months, Nigeria’s foreign reserves have recorded $19.8billion increase from $23billion in October 2016 to $42.8billion on February 13, 2018, representing some 86 per cent growth.

The Central Bank of Nigeria (CBN) had announced on January 5, 2018 that the nation’s external reserves recorded its highest growth in four years at $40.4billion, but the figure on February 13, 2018, has exceeded that by 5.94 per cent.

Foreign exchange reserves (also called forex reserves or FX reserves) are monies or other assets held by a central bank or other monetary authority so that it can pay, if need be, its liabilities.

The quantum leap in Nigeria’s foreign reserves portfolio has remained a subject of discourse among multilateral organisations like the World Bank and local institutions. While the former have linked the growth to a favourable commodity price in the world market, the Central Bank of Nigeria and some analysts maintain that the policies on foreign exchange management have been a major boost to the growth in external reserves.

The World Bank disclosed in its January 2018 Global Economic Prospect report launched in February in Washington DC, that an upward revision to Nigeria’s growth forecast is based on expectation that oil production will continue to recover and that reforms will lift non-oil sector growth.

A report from the Organisation of Petroleum Exporting Countries (OPEC), corroborated the position of the World Bank that Nigeria’s economy growth, which also has impacted its external reserves, is in no way disconnected with an increase in crude oil prices which is particularly favourable to Nigeria.

“Apart from Bonny Light crudes, other Nigeria’s oil grades such as Brass River and Qua Iboe also appreciated in value to sell at $65.32 and $61.22 per barrel respectively on Tuesday, January 2, 2018, at the international market”. The OPEC basket however declined to $60.62 a barrel on Wednesday, February 14, 2018 from $61.22 per barrel recorded as at January 2, 2018.

Nigeria’s Central Bank Governor, Godwin Emefiele, had in November last year at a gathering of bankers, economists and key stakeholders in the economy in Lagos predicted that the nation’s foreign reserves which has witnessed a positive growth over the last 12 months, from just over $23 billion in October 2016 to over $33 billion in October 2017, will hit the $40billion mark in 2018. He said the feat was achieved largely due to the policy direction of the bank on foreign exchange.

His words: “The accretion in reserves does not only reflect increased inflow but also our shrewd forex demand management strategy. When we introduced a policy restricting 41 items from our forex markets, we were called all manner of names.”

Apart from its restriction policy on import, Emefiele disclosed in December last year that the nation’s foreign reserves rose to $38.2billion with the issuance of Eurobonds by the Federal Government. He said the external reserves figure was the highest in 39 months.

In November, the federal government raised $3billion through Eurobonds, which was oversubscribed by about $11billion and split across 10-year and 30-year tranches at issuance yield of 6.5 per cent and 7.625 per cent, respectively.

Some financial experts could not agree less with Nigeria’s number one banker as they said the positive growth witnessed in the economy in recent times could be traced to the forex management policy of the CBN and rising oil prices.

They identified the source of resurging forex liquidity and stability in the sectors as the emergence of the popular Investors’ & Exporters’ (I&E) FX Window, which has been operational for about 11 months and stable oil prices.

Specifically, financial experts at Afrinvest Securities Limited, in one of its weekly market update in February said the improved liquidity in the FX market remained a key determinant of the performance of the broader economy, as recent developments in manufacturing and non-manufacturing sectors has indicated.

They, however noted that despite improvements recorded in 2017, gains still remained “fragile” as the impact was yet to be reflected in the non-oil sector growth figures, which was unimpressive in third quarter data as provided by the Purchasing Managers Index (PMI) for December, released by the CBN.

Under the renewed forex intervention and management policy of the Central Bank of Nigeria since February 2017, these sectors were given opportunities to obtain the much-needed forex liquidity to sustain activities amid dwindling forex earnings by the country.

Mr. Isaac Okoroafor, Acting Director, Corporate Communications, CBN, reiaterated that restricting access to official market against importers of the 41 items was the major turning point that helped to stop the haemorrhaging of the country’s external reserves, which hitherto witnessed heavy depletion due to huge import bills and other debt obligations.

According to him, the CBN policy had ensured a decline in Nigeria’s import bills from over $5.0 billion monthly in 2015 to about $1.5 billion in 2017.

He expressed optimism that with the determination of the apex bank and the cooperation of the fiscal authorities, the external reserves would continue to enjoy more accretion in the course of 2018.

Investment Researcher at WSTC Financial Services Limited, said, it was expected that the fiscal authorities will be more inclined to managing the nation’s resources giving lessons learnt from the economic disruptions in the last few years.

Nevertheless, Director, Union Capital Markets Ltd, Egie Akpata, believed the rapid growth in reserves was largely due to rising oil price and FX inflows by foreign portfolio investors.

He, however, added that, “Given the recent pullback in the oil price, it is possible that the rate of accretion will slow down. However, the recent $2.5b Eurobond issuance would likely show up as a short term spike reserves in the next week or two.”

Noting that, “Rising reserves gives comfort to foreign portfolio investors that the Naira is likely to hold at these levels in the near term,” Akpata said, “It also gives the CBN some ammunition to defend the Naira later in the year when election jitters could impact FPI flows.”

Going forward, the director expressed the hope that, “Given the impact of FX scarcity on GDP growth in 2016, I would expect this healthy reserves to keep the FX market liquid and boost GDP growth.”

“A lot however depends on the oil price which is outside the control of CBN. If oil falls much below $60, we might not see reserves grow much except when Nigeria issues new Eurobonds,” he, however, added.

In his own analysis, the CEO, Global Analytics Consulting, Tope Fasua, argued that, “The rise in the price of Crude Oil is responsible for the recent accretion given that the Minister of Finance recently spoke about ‘balancing’ the budget around $45 as price of the commodity.”

Suggesting that, “This accretion needs to be weighed against our increasing dollar exposure in the debt markets as well, as noted by Agusto and Co, among others,” he noted that, “The tempo can be sustained for as long as crude oil prices keep rising or maintains a relatively high level.”

“But the tempo can be halted if for any reason we experience another dip. This again brings to the fore the dependency problem,” he added.

Be that as it may, Fasua submitted that, “It’s a good development for the economy, but those expecting a strengthening of the Naira will have longer to wait because $42billion is not really a lot of cushion still. Countries like Algeria – also a crude oil exporter – are sitting on as much as $150billion. Our years of waste still haunt us, and we are yet to kick a lot of our bad spending habits.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Fed’s Decision to Hold Rates Stalls Oil Market, Brent Crude Slips to $82.17



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Oil prices faced a setback on Thursday as the U.S. Federal Reserve’s decision to maintain interest rates dampened investor sentiment.

The Federal Reserve’s announcement on Wednesday indicated a reluctance to initiate an interest rate cut, pushing expectations for policy easing possibly as late as December. This unexpected stance rattled markets already grappling with inflationary pressures and economic uncertainty.

Brent crude, the international benchmark for Nigerian crude oil, saw a drop of 43 cents, or 0.5% to $82.17 a barrel, reflecting cautious investor response to the Fed’s cautious approach.

Similarly, West Texas Intermediate (WTI) crude oil also slipped by 46 cents, or 0.6% to settle at $78.04 per barrel.

Tamas Varga, an analyst at PVM Oil, commented on the Fed’s decision, stating, “In the Fed’s view, this is the price that needs to be paid to achieve a soft landing and avoid recession beyond doubt.”

The central bank’s move to hold rates steady is seen as a measure to balance economic growth and inflation containment.

The Energy Information Administration’s latest data release further exacerbated market concerns, revealing a significant increase in U.S. crude stockpiles, primarily driven by higher imports.

Fuel inventories also exceeded expectations, compounding worries about oversupply in the oil market.

Adding to the downward pressure on oil prices, the International Energy Agency (IEA) issued a bearish report highlighting concerns over potential excess supply in the near future.

The combination of these factors weighed heavily on investor sentiment, contributing to the decline in oil prices observed throughout the trading session.

Meanwhile, geopolitical tensions in the Middle East continued to influence market dynamics, with reports of Iran-allied Houthi militants claiming responsibility for recent attacks on international shipping near Yemen’s Red Sea port of Hodeidah.

These incidents underscored ongoing concerns about potential disruptions to oil supply routes in the region.

As markets digest the Fed’s cautious stance and monitor developments in global economic indicators and geopolitical tensions, oil prices are expected to remain volatile in the near term.

Analysts suggest that future price movements will hinge significantly on economic data releases, policy decisions by major central banks, and developments in geopolitical hotspots affecting oil supply routes.


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Crude Oil

Nigerian Oil Loses Ground to Cheaper US and Russian Crude



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Nigeria’s once-thriving oil industry is facing a significant challenge as traditional buyers increasingly turn to more affordable alternatives from the United States and Russia.

This shift has led to France emerging as the leading buyer of Nigerian crude, marking a significant change in the global oil market dynamics.

Top Nigerian crude grades like Bonny Light, Forcados, and Brass have long been favored by refineries in Europe and Asia due to their low sulfur content.

However, the country’s primary customers, including India and China, are now opting for cheaper US and Russian oil.

This trend poses a substantial risk to Nigeria, which relies on oil exports for more than half of its foreign exchange earnings.

Data from BusinessDay reveals a stark decline in India’s purchase of Nigerian crude. In the first quarter of 2024, India bought N1.3 trillion worth of Nigerian oil, a significant drop from the average of N2 trillion purchased between 2018 and 2021.

“Buyers are increasingly turning to cheaper alternatives, raising concerns for the country’s revenue stream,” said Aisha Mohammed, a senior energy analyst at the Lagos-based Centre for Development Studies.

The latest tanker-tracking data monitored by Bloomberg indicates that India is buying more American crude oil as Russian energy flows dwindle amid sanctions.

India’s state-owned oil refiners and leading private companies have increased their imports of US crude, reaching nearly seven million barrels of April-loading US oil. This shift is the largest monthly inflow since last May.

Russian crude flows to India surged following the invasion of Ukraine, making Russia the biggest supplier to the South Asian nation.

However, tighter US sanctions have stranded Russian cargoes, narrowing discounts, and prompting India to ramp up purchases from Saudi Arabia.

“Given the issues faced with importing Sokol in Russia, it’s no surprise that Indian refineries are turning toward US WTI Midland as their light-sweet alternative,” explained Dylan Sim, an analyst at industry consultant FGE.

As a result, France has overtaken the Netherlands to become the biggest buyer of Nigerian crude oil, purchasing products worth N2.5 trillion in the first quarter of 2024.

Spain and India occupied second and fourth positions, with imports valued at N1.72 trillion and N1.3 trillion respectively, as of March 2024.

The sluggish pace of sales for Nigeria’s May supplies highlights the market’s shifting dynamics. Findings show that about 10 cargoes of Nigerian crude for May loading were still available for purchase, indicating a reduced demand.

Rival suppliers such as Azeri Light and West Texas Intermediate have also seen price weaknesses, impacting Nigerian crude demand.

“We’ve got much weaker margins, so Nigeria’s crude demand is taking a hit,” noted James Davis, director of short-term oil market research at FGE.

Sellers seeking premiums over the Dated Brent benchmark have found the European market less receptive, according to Energy Aspects Ltd.

“May cargoes were at a premium that didn’t work that well into Europe, but lower offers have seen volumes move,” said Christopher Haines, EA global crude analyst. “Stronger forward diesel pricing is also helping.”

Some Nigerian grades are being priced more competitively, including Qua Iboe to Asia and Bonny Light to the Mediterranean or East, with the overhang slowly reducing, according to Sparta Commodities.

However, the overall reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government.

“Reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government,” warned Charles Ogbeide, an energy analyst with a Lagos-based investment bank.

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Refiners Predict Petrol Prices to Fall to N300/Litre with Adequate Local Crude Supply



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The pump price of Premium Motor Spirit (PMS), commonly known as petrol, could drop to N300 per litre once local production ramps up significantly, according to operators of modular refineries.

This projection hinges on the provision of sufficient crude oil to domestic refiners, which they say would undercut the exorbitant costs currently imposed by foreign refineries.

Speaking under the aegis of the Crude Oil Refinery Owners Association of Nigeria (CORAN), the refiners stressed the urgency for the government to ensure a steady supply of crude oil to local processing plants.

They argue that the reliance on imported petroleum products has been economically disadvantageous for Nigeria.

Eche Idoko, Publicity Secretary of CORAN, emphasized that the current high costs could be mitigated by boosting local production.

“If we begin to produce PMS in large volumes and ensure adequate crude oil supply, the pump price could be reduced to N300 per litre. This would prevent Nigerians from paying nearly N700 per litre and stop foreign refiners from profiting excessively at our expense,” Idoko stated.

The potential price drop follows the model seen with diesel, which experienced a significant price reduction once the Dangote Petroleum Refinery began its production.

“Diesel prices dropped from N1,700-N1,800 per litre to N1,200 per litre after Dangote started producing. This is a clear indication that local production can drastically reduce costs,” Idoko explained.

In a previous statement, Africa’s richest man, Aliko Dangote, affirmed that Nigeria would cease importing petrol by June 2024 due to the Dangote Refinery’s capacity to meet local demand.

Dangote also expressed confidence in the refinery’s ability to cater to West Africa’s diesel and aviation fuel needs.

Challenges and Governmental Role

However, achieving this price reduction is contingent on several factors, including the provision of crude oil at the naira equivalent of its dollar rate.

CORAN has advocated for this approach, citing that it would bolster the naira and reduce the financial burden on refiners who currently buy crude in dollars.

The Nigerian government has shown some commitment towards this goal. Gbenga Komolafe, Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), confirmed that a framework has been developed to ensure consistent supply of crude oil to domestic refineries.

“We have created a template for the Domestic Crude Oil Supply Obligation to foster seamless supply to local refineries,” Komolafe stated.

Industry Reactions

Oil marketers have welcomed the potential for reduced petrol prices. Abubakar Maigandi, President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), expressed optimism about the Dangote Refinery’s impact on petrol prices.

“We expect the price of locally produced PMS to be below the current NNPC rate of N565.50 per litre. Ideally, we are looking at a price around N500 per litre,” Maigandi noted.

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