• Monday, July 15, 2024
businessday logo

BusinessDay

Stocks may hit new lows as OPEC girds for sub – $20 oil

businessday-icon

Nigerian stocks have gotten off to a bad 2015 down 12 percent, after falling nearly 17 percent last year.

We believe the sell-off may only intensify in coming months as negative sentiment and extremely bearish trend for oil prices cloud outlook.

Crude fell 48 percent last year and has declined 35 percent since OPEC affirmed its output target on November 27.

OPEC won’t reverse course even if oil prices fall as low as $20 a barrel or non-OPEC countries offer to help with production cuts, Saudi Arabian oil minister Ali Al – Naimi said in an interview with the Middle East Economic Survey on December 21.

The four Middle East OPEC members (Saudi Arabia, UAE, Kuwait and Qatar) are counting on combined reserve assets estimated by the IMF at $826.4 billion to withstand the plunge in prices.

Unfortunately for Nigeria, its Foreign Exchange (FX) reserves which did not rise during the oil boom years (2011 – 2013), are now grossly inadequate to withstand this sharp fall in oil prices.

Data from the CBN show that official reserves decreased by $2.3 billion in December to $34.5 billion.

Nigeria is Africa’s top oil producer exporting around 1.9 million b/d on average in 2014 due to consistent production leakages and limited new investment in the sector.

The country is also heavily dependent on oil which account for around 95 percent of export dollar earnings, according to CBN data, and up to 80 percent of consolidated government revenue.

The Nigerian Stock Exchange (NSE) cannot rally in a period of prolonged sell-off in oil prices.