Brent oil extended its longest rally in a year and a half, rebounding above $60 a barrel but Africa’s largest oil producer and its most populous country may have to wait longer to secure the funding cushion it badly needs.
While Wednesday’s price jump which came on hopes of a resolution in the U.S.-China trade dispute is good for Nigeria, there are, however, subsisting worries about the on going exit from the country of portfolio investors as a result of the coming general elections many now say will be a closely fought contest between incumbent Muhammadu Buhari and his main challenger Atiku Abubakar.
Brent futures in London — which last traded over $60 in December — are up Wednesday for an eighth session, recovering from a 35 percent slump in the last quarter of 2018.
An industry report Tuesday was said to show American crude inventories declined and fears of a slowdown in oil demand are receding with an easing of the long-running trade tensions, which helped drag crude prices into a bear market after they hit a four-year high in October.
Confidence is also strengthening that the Organization of Petroleum Exporting Countries and its allies including Russia will curb out-put enough to counter booming U.S. supplies and avoid an oversupply.
Nigeria’s gross official foreign exchange reserves increased by US$950m in December to US$43.12bn on the back of the FGN’s latest Eurobond sales which raised US$2.86bn.
This accretion has been partly countered by two negative developments according a note from FBNQuest Capital.
According to the note, “the first is the continuing, and well-documented exit of some offshore portfolio players from Nigeria, as from other emerging/frontier markets. The CBN is now a regular seller of fx at the investors’ and exporters’ window (NAFEX). The second is the apparent withdrawal on the FGN’s instructions of US$1.6bn from the excess crude account.”
Foreign exchange reserves at end-December covered more than 16 months’ merchandise imports, and nine months when we include services on the basis of the balance of payments (BoP) to June 2018. This remains a more than adequate buffer.
