Foreign Reserves Drop to $33.79bn as Nigeria Struggles to Sell Oil

• Foreign Reserves Drop to $33.79bn as Nigeria Struggles to Sell Oil

The Nigerian foreign reserves declined further in April following the inability of the nation to find buyers for its crude oil.

According to the Central Bank of Nigeria (CBN), the foreign reserves declined from $38 billion in January 2020 to $33.792 billion on April 17, 2020 amid COVID-19 pandemic.

The pandemic had plunged demand for crude oil by over 30 million barrels per day as refineries and businesses were forced to shut down operations to curb the spread of COVID-19.

The weak global demand led to supply glut that eventually plunged crude oil prices by more than 70 percent from year-to-date.

However, since demand fell, countries like Saudi Arabia, Iraq, etc have had to offer discounts to sell their oil while nations like Nigeria, Angola, Libya, etc with high cost of production struggles to find buyers even with discounts.

For instance, Nigeria and others could not match Saudi Arabia discount between $5 to $8 per barrel due to Saudi Arabia’s low cost of production estimated at $4 per barrel. Therefore, at present Brent’s price of $19 per barrel Saudi Arabia can still sell, even at $12.

While on the other hand, it cost Nigeria $17 to produce a barrel of crude, meaning at $19 a barrel Nigeria can no longer offer discount or even sell given global oil glut.

Earlier this month, Reuters reported that Nigeria could not find buyers for over 60 cargoes due to weak global demand for the commodity. This, lack of sales weighed on the nation’s foreign revenue generation and partly explains why the foreign reserves has been on the decline since the beginning of the year.

However, with foreign reserves falling, inflation rate rising at 12.26 percent, unemployment rate at 23.1 percent and business activities grounded to curtail the spread of COVID-19, Nigeria’s economy is projected to contract this year by 3.4 percent by the International Monetary Fund.