• Wednesday, February 28, 2024
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Watch oil and NGN assets as FX reserves accretion stalls


Nigeria’s Foreign Exchange (FX) reserves accretion has stalled in recent months as Brent Crude oil recently fell below the $100 per barrel mark.

Brent for October settlement rose as much as 72 cents, or 0.7 percent, to $98.80 a barrel on the London-based ICE Futures Europe exchange.

Nigeria’s benchmark Bonny light crude oil traded at $99.6 per barrel on September 11, according to data from the Central Bank of Nigeria (CBN).

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 CBN’s FX reserves have remained stuck at the $39 billion levels in the past month (See Fig 1). Gross reserves were at $39.576 billion on August 11, and remained essentially flat at $39.573 billion on September 11, according to the CBN data.

The exchange rate has remained firm recently with interbank USD-NGN trading in a tight 161-163 range since early July. Stress on the NGN may however likely materialise from a weaker oil price combined with below-potential output.

OPEC last Wednesday reduced forecasts for the amount of crude it will need to supply by the most in at least three years, as surging North American shale output reduces reliance on the group’s supplies.

The change implies that OPEC’s 12 members would need to cut output by about 1.1 million barrels a day from the 30.3 million they produced in August.

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

Stocks have under performed peers this year with the NSE-ASI down -1.38 percent Ytd (September 11), compared with an 18 percent gain in the MSCI Frontier markets index.

Bonds may also sell-off and prices fall while yields spike if oil stays below the $100 level for long.

The 2014 Nigerian budget is based on a benchmarks price of $77.5/ barrel this year; however, any cushion is eroded from the unrealistic production assumption of 2.3 million barrels per day.