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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.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Oil Steadies, But Outlook Gloomy as Coronavirus Cases, Supply Grow

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Oil prices eked out small gains on Tuesday after sharp losses, but sentiment remained subdued as a surge in global coronavirus cases hit prospects for crude demand while supply is rising.

Brent crude was up 43 cents, or 1%, at $40.87 a barrel. U.S. oil gained 43 cents, or 1.1%, at $38.99 a barrel. Both contracts fell more than 3% on Monday.

A lack of progress on agreeing a U.S. coronavirus relief package added to market gloom, although U.S. House of Representatives Speaker Nancy Pelosi said on Monday she hoped a deal can be reached before the Nov. 3 elections.

A wave of coronavirus infections sweeping across the United States, Russia, France and many other countries has undermined the global economic outlook, with record numbers of new cases forcing some countries to impose fresh restrictions as winter looms.

“We think demand from this point onwards is really going to struggle to grow. COVID-19 restrictions are all part of that,” said Commonwealth Bank of Australia (CBA) commodities analyst Vivek Dhar.

CBA expects U.S. oil to average $38 and Brent to average $41 in the fourth quarter this year.

Prices got some support from a potential drop in U.S. production as oil companies began shutting offshore rigs with the approach of a hurricane in the Gulf of Mexico.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said on Monday the worst is over for the crude market.

But his comment contradicted an earlier remark from OPEC’s secretary general, who said any oil market recovery may take longer than hoped as coronavirus infections rise around the world.

Meanwhile, Libyan production is expected to reach 1 million barrels per day (bpd) in the coming weeks, the country’s national oil company said on Friday, a quicker return than many analysts had predicted.

That is likely to complicate efforts by the Organization of the Petroleum Exporting Countries (OPEC) to restrict output to offset weak demand.

OPEC+ – made up of OPEC and allies including Russia – is planning to increase production by 2 million bpd from the start of 2021 after record output cuts earlier this year.

An analyst survey by Reuters ahead of data from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday estimated that U.S. crude stocks rose in the week to Oct. 23, while gasoline and distillate inventories fell.

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Nigel Farage Urged to Highlight Perils of DIY Investing

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Nigel Farage appears to be advocating a DIY approach to investing – and this could be “monumentally risky” for inexperienced investors, warns the CEO of one of the world’s largest independent financial advisory and fintech organisations.

The warning from Nigel Green, chief executive and founder of deVere Group, comes as a daily finance-orientated newsletter from the team of the Brexit Party leader and political activist urges its readers to “tell us about your successes by going it alone – leaving the money men and middlemen by the side of the road…”

Mr Farage’s email is provided for correspondence.

Mr Green comments: “Successful DIY (Do It Yourself) investing can be possible, but for most people it is not recommended – indeed, it could be a costly and traumatic accident waiting to happen.

“Going it alone can be monumentally risky for inexperienced investors as the complexities involved can sink their portfolios.

“Perhaps this is why around two-thirds of wealthy individuals have a professional financial adviser of some sort, according to new independent research from the University of Toronto.”

He continues: “I would urge anyone who extols the virtues of a DIY approach to investing to also underscore the risks and potential pitfalls to be avoided.”

A pro will help you make the best investment decisions in five key ways, says Nigel Green.

“First, helping you to diversify a portfolio. Spreading money around is vital to curb risk. However, it must be used correctly – diversification will only add real value if the new asset has a different risk profile.

“Second, investing with a plan: Unless you have a sound plan, you’re gambling, not investing.

“Third, avoiding emotional decisions. Overly emotional decisions can prove deadly when it comes to investments because they are blighted by prejudices and biases.

“Fourth, regularly reviewing your portfolio: Investments need to be consistently reviewed to ensure they still deserve their place in the portfolio and that they are still on track to reach your long-term financial objectives.

“Fifth, not focusing excessively on historical returns: The future investment situation is likely to be different from time-aged averages.”

The deVere CEO concludes: “While investing remains almost universally regarded as one of the best ways to create, grow and safeguard wealth, considering the pitfalls of getting it wrong, it could be an expensive mistake for you and your family not to seek professional advice.”

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Top Five US Oil and Gas Firms Lost $307bn in Market Value Amid COVID-19 Crisis

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Market Value of US Five Largest Companies Decline by $307bn in 2020

Even before the coronavirus pandemic, the oil and gas industry was faced with slumping prices. However, with a record collapse in oil demand amid the coronavirus lockdown, the COVID-19 crisis has further shaken the market, causing massive revenue and market cap drops for even the largest oil and gas companies.

According to data presented by StockApps.com, the top five oil and gas companies in the United States lost over $307bn in market capitalization year-over-year, a 45% plunge amid the COVID-19 crisis.

Market Cap Still Below March Levels

Global macroeconomic concerns such as the US-China trade war and the oil overproduction set significant price drops even before the coronavirus outbreak. A standoff between Russia and Saudi Arabia in the first months of 2020 sent prices even lower.

After global oil demand plunged in March, Saudi Arabia proposed a cut in oil production, but Russia refused to cooperate. Saudi Arabia responded by increasing production and cutting prices. Shortly Russia followed by doing the same, causing an over 60% drop in crude oil prices at the beginning of 2020. Although OPEC and Russia agreed to cut oil production levels to stabilize prices a few weeks later, the COVID-19 crisis already hit. Statistics show that oil prices dropped over 40% since the beginning of 2020 and are hovering around $40 a barrel.

Such a sharp fall in oil price triggered a growing wave of oil and gas bankruptcies in the United States and caused a substantial financial hit to the largest gas producers.

In September 2019, the combined market capitalization of the five largest oil and gas producers in the United States amounted to $674.2bn, revealed the Yahoo Finance data. After the Black Monday crash in March, this figure plunged by 45% to $373bn. The following months brought a slight recovery, with the combined market capitalization of the top five US gas producers rising to over $461bn in June.

However, the fourth quarter of the year witnessed a negative trend, with the combined value of their shares falling to $367bn at the beginning of this week, $6.2bn below March levels.

Exon Mobil`s Market Cap Halved in 2020, Almost $155bn Lost YoY

In August, Exxon Mobil Corporation, once the largest publicly traded company globally, was dropped from the Dow Jones industrial average after 92 years. As the largest oil and gas producer in the United States, the company has suffered the most significant market cap drop in 2020.

Statistics indicate the combined value of Exxon Mobil`s shares plunged by 52% year-over-year, falling from almost $300bn in September 2019 to $144bn at the beginning of this week.

Phillips 66, the fourth largest gas producer in the United States by market capitalization, witnessed the second-largest drop in 2020. Statistics show the company`s market cap dipped by 49.6% year-over-year, landing at $22.9bn this week.

The Yahoo Finance data revealed that EOG Resources lost over $21bn in market cap since September 2019, the third-largest drop among the top five US gas producers.

Conoco Phillips witnessed a 42% drop in market capitalization amid the COVID-19 crisis, with the combined value of shares plunging by almost $30bn year-over-year.

Statistics show Chevron witnessed the smallest market cap drop among the top five companies. At the beginning of this week, the combined value of shares of the second-largest US gas producer stood at $141.5bn, a 36.9% plunge year-over-year.

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