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Lack of Inflows, Revenue Shortage Plunge Nigeria’s Excess Crude Account By 89%

The ECB balance declined from $4.1 billion recorded in November 2014 to $472,513

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Weak foreign revenue inflow amid fluctuations in the global oil market has plunged Nigeria’s Excess Crude Account (ECA) by 89% in the last eight years.

The Excess Crude Account (ECA) is an account used to save excess crude oil revenue by the Nigerian government.

The ECB balance declined from $4.1 billion recorded in November 2014 to $472,513 in the same period of 2022, according to a statement from the Ministry of Finance, Budget, and National Planning.

Economists attributed the substantial decline to the nation’s persistent depreciation in foreign revenue inflows and the struggle with crude oil production amid global uncertainty.

According to Jonathan Aremu, professor of economics at Covenant University in Ogun State, the decline was a result of constant withdrawal without replenishment.

“For you to increase the ECA, the oil price must rise above the budgeted price. If it does not, nothing goes in.  Also, if what you are spending is higher than what goes in, it depletes. This is the situation,” he noted.

On Thursday, crude oil prices declined following the Group of Seven (G7) nations’ proposed plan to cap Russian oil at $65-70 a barrel.

Brent crude oil, against which Nigerian oil is priced, declined to $85 a barrel while the West Texas Intermediate (WTI) crude fell by 0.6% to $77.48 a barrel.

Despite the fact that the benchmark price for oil in the 2022 budget was $57, the price of oil today is still about $30 higher. In spite of higher oil prices, the ECA has been on a decline since early 2022, suggesting that the issue is internal.

“Nigeria’s crude production plunged below 1 million barrels per day (mbpd) for the first time since Buhari became President this year and has averaged about 1.2 mbpd most part of 2022. Therefore, it is impossible to take advantage of the Russian-Ukraine war inflated oil prices like we did during the Gulf war under former president Ibrahim Babangida,” Samed Olukoya, CEO/Founder Investors King Ltd stated.

The government needs to address internal issues, revamp refineries, reduce oil theft and diversify the economy to reduce overexposure to global oil fluctuations.

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Crude Oil

Oil Revenue into Foreign Reserve Dropped From $3bn Monthly in 2014 to Zero in 2022

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The official foreign exchange receipt from crude oil sales into Nigeria’s official reserves has dried up steadily from above US$3.0 billion monthly in 2014 to an absolute zero dollar today, the Central Bank of Nigeria (CBN) governor, Godwin Emefiele disclosed.

Speaking at the 57th annual bankers’ dinner organized by the Chartered Institute of bankers of Nigeria (CIBN) in Lagos, the CBN governor noted that there has been a significant loss in foreign reserves due to the naira’s struggle and the rise in demand for forex. 

He added that the sharp increase in the number of Nigerians who are seeking education in foreign countries particularly the UK has resulted in an unprecedented demand for foreign exchange. 

According to him, the number of student visas issued to Nigerians by the UK alone has increased from an annual average of about 8,000 visas as of 2020 to nearly 66,000 in 2022.

Emefiele also lamented about the level of crude oil theft in Nigeria which has significantly affected the country’s oil production. He noted that crude oil theft has adversely impacted the Country’s foreign exchange reserves.

Investors King had earlier reported that Nigeria has lost its coveted position as Africa’s largest oil producer after oil production dropped below the mark of 1 million barrels per day. 

Nigeria currently trails Angola, Libya and Algeria to the fourth position. 

Meanwhile, on the Naira-4-Dollar scheme which the CBN introduced to boost migrant remittances into the Nigerian economy, the CBN governor noted that the scheme has largely been successful. 

“I am happy to note that, so far, the Naira-for-Dollar scheme has been successful in increasing remittance inflows through our registered International Money Transfer Organisation (IMTOs),” he said.

Emefiele also noted that the introduction of the National Domestic Card Scheme (NDCS) will help to reduce the operating cost incurred by commercial banks while using foreign cards. 

It could be recalled that the CBN earlier announced that it planned to introduce Nigeria-made transactional cards to replace well-known cards such as Visa and MasterCard.

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Crude Oil

Crude Oil Gained 2% as U.S. Oil Inventories Dipped Last Week

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Crude Oil - Investors King

Crude oil appreciated on Tuesday on signs global supply is declining amid better-than-expected optimism on Chinese economic recovery and a weaker dollar.

But the likelihood that OPEC+ will leave output unchanged at its upcoming meeting limited the gains.

Brent crude futures rose $2.06, or 2.48% to $85.09 per barrel by 1044 GMT. The more active February Brent crude contract rose by 2.02% to $85.95.

U.S. West Texas Intermediate (WTI) crude futures climbed $1.69, or 2.16%, to $79.89.

Support followed expectations of tighter crude supply.

U.S. crude oil stocks dropped by 7.9 million barrels in the week ended Nov. 25, according to market sources citing American Petroleum Institute figures on Tuesday.

Official figures are due from the U.S Energy Information Administration on Wednesday.

And the International Energy Agency expects Russian crude production to be curtailed by some 2 million barrels of oil per day by the end of the first quarter next year, its chief Fatih Birol told Reuters on Tuesday.

On the demand side, further support came from optimism over a demand recovery in China, the world’s largest crude buyer.

China reported fewer COVID-19 infections than on Tuesday, while the market speculated that weekend protests could prompt an easing in travel restrictions.

Guangzhou, a southern city, relaxed COVID prevention rules in several districts on Wednesday.

A fall in the U.S. dollar was also bearish for prices. A weaker greenback makes dollar-denominated oil contracts cheaper for holders of other currencies, and boosts demand.

Fed Chair Jerome Powell is scheduled to speak about the economy and labour market on Wednesday, with investors looking for clues about when the Fed will slow the pace of its aggressive interest rate hikes.

Capping gains, the OPEC+ decision to hold its Dec. 4 meeting virtually signals little likelihood of a policy change, a source with direct knowledge of the matter told Reuters on Wednesday.

“Market fundamentals favour another cut, especially given the uncertainty over China’s COVID situation … Failure to do so risks sparking another selling frenzy,” said Stephen Brennock of oil broker PVM.

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Crude Oil

Oil Drops on Monday During Asian Trading Session Amid Chinese Covid-19 Protest

Brent crude oil, the international benchmark for oil Nigerian oil, declined by $2.16, or 2.6% to $81.47 a barrel during the Asian trading session after previously hitting $81.16 per barrel.

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Crude oil opened lower on Monday as citizens of the world’s largest importer of the commodity, China protested over tough COVID-19 restrictions.

Brent crude oil, the international benchmark for oil Nigerian oil, declined by $2.16, or 2.6% to $81.47 a barrel during the Asian trading session after previously hitting $81.16 per barrel.

U.S. West Texas Intermediate (WTI) crude oil also dipped by $2.08, or 2.7% to $74.20  per barrel, paring losses from $73.

Last week, Brent crude oil lost 4.6%, its 10-month low while the WTI closed 4.7% lower as global uncertainty continues to dictate commodity prices.

“On top of growing concerns about weaker fuel demand in China due to a surge in COVID-19 cases, political uncertainty, caused by rare protests over the government’s stringent COVID restrictions in Shanghai, prompted selling,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

WTI’s trading range is expected to fall to $70-$75, he said, adding the market could stay volatile depending on the outcome of the OPEC+ meeting and the price cap on Russian oil.

China, the world’s top oil importer, has stuck with President Xi Jinping’s zero-COVID policy even as much of the world has lifted most restrictions.

Hundreds of demonstrators and police clashed in Shanghai on Sunday night as protests over China’s strict COVID restrictions flared for a third day and spread to several cities in the wake of a deadly fire in the country’s far west.

The wave of civil disobedience is unprecedented in mainland China since Xi assumed power a decade ago, as frustration mounts over his zero-COVID policy nearly three years into the pandemic.

“Bearish sentiment is growing in the oil market with mounting concerns over demand in China and a lack of clear signs from oil producers to further cut output,” said Tetsu Emori, CEO of Emori Fund Management Inc.

“Unless OPEC+ agrees on a further reduction of production quota or the United States moves to reload its strategic petroleum reserves, oil prices may be headed further down,” he said.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, will meet on Dec. 4.

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