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Currencies

Why external reserves is falling despite a rise in oil prices

Increased oil prices seem not to have stopped the further slide in Nigeria’s foreign reserves.

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Emefiele’s reappointment

Nigeria’s external reserve declined from $36.3 billion as of January 29, 2021, to $34.998 billion as of March 1, 2021, losing about $1.4 billion in just a month.

The rapid drop in the country’s external reserve is occurring despite the increase of Brent crude to over $66 per barrel as of February 24, 2021, from about $51 per barrel that it closed with on January 4, 2021.

Some analysts had attributed a couple of likely reasons for this drop. This includes the CBN intervention in the forex market to stabilize the exchange rate, low foreign inflows into the country, some CBN forex policies which discourage foreign investors.

The President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, during his chat with Nairametrics, said that the decline in Nigeria’s external reserve despite the recent increase in oil prices was due to supply shocks and shortages of foreign exchange due to drop of forex inflow from various sources.

Gwadebe said, ‘’You know we have a lot of supply shocks and shortages even before the appreciation of the crude oil prices, we just came out of recession with less than even 0.1%. We know the prices of crude oil, the demand came down throughout the Covid-19 period, even now with the new variant. So the IMTOs inflow has reduced drastically, export proceeds have reduced drastically, the I & E window has also gone down drastically. You know you can appreciate what is happening at the I & E window, their trade transactions sometimes hover up to N420/$1.’’

Read Also: CBN Governor confirms exchange rate unification plans  

On why increased oil prices have not stopped the further slide in the reserves, the ABCON President said, ‘’Completely all the sources coming have dried up, the oil prices dried up, IMTO window dried up. We are talking about a month, and these are contracts that have been closed for 3, 6 months delivery, we are just witnessing it. It will take time, it’s a very good buffer, no doubt we rely on it heavily for 90% of our foreign exchange supply. So if we have that improvement, it will give the CBN the muscle, the wherewithal to continue to support the local market. It will give CBN the muscle to make any speculation, check any hoarding.”

‘’Now that we have prospects in oil prices definitely that news, that coming in of new inflows will give the CBN the muscle to make any speculation, to checkmate hoarding, because they are in I & E window, they are in BDC window, they are in a lot of windows, so they can come up with liquidity. Definitely, it is going to. And we have seen the impact because the way it was going before this increase in crude oil prices, it was worrisome and if you look at it now it has remained stable, the highest it went is N480 for the parallel market and its always trending down. There is that stability just for that news, so you can imagine when we start receiving the liquid grill just imagine what it will become just like people have predicted and analyzed N430, N450/$1 is what we might be looking at by the end of the year,’’ he added.

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On his part, a treasury and financial analyst, Odinaka Nwokonkwo, while giving reasons why it should be that way, pointed to CBN obligations. He said the apex bank paid Eurobond maturities in January or thereabout, and did FX swap with local and international counterparts which may have matured and needed to be paid down.

He said, ‘’There is a Eurobond maturity that CBN funded for, so that would also reduce the reserves, then another thing is when you look at, CBN has been intervening in the forex market. So on that space, you are seeing retail, you are seeing SME and invisibles intervention weekly. Retail is biweekly and SME and invisible about $100 million weekly. So sometimes CBN has bilateral transactions with international institutions and local banks where they take their FX and basically give them treasury bills, so that also is part of the reserves.

Read Also: Oil prices break above $65 a barrel, passing 13-month high

‘’So if some of those swaps have matured and CBN needs to pay down these bonds, they will also see a reduction. So it’s a combination of a lot of things. And also what is the volume of sales of the oil, are we really selling more, is the quantity we are selling is the same as what we are selling before. The demand might drop a little bit because some countries also have a second lockdown.’’

Nwokonkwo also believes that in the next quarter, there might see an accretion because some of those obligations may not be there.

Stanbic 728 x 90

While pointing out that the accretion rate is slower than the debit rate, he said the oil price at $65 is not a significant increase compared to CBN FX obligations.

These external reserve figures and swings point to two things: Nigeria seems to be overestimating the power of it oil to keep the country running and the enduring reality it needs to find other ways of earning foreign exchange.

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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    Currencies

    Naira gains at black market as external reserves increases by $620 million in 2 weeks

    The opening indicative rate closed at N410.88 to a dollar on Monday.

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    Naira’s true worth,Naira gains on the dollar for the first time since March, Naira forwards hit record high as it crashes to N420/dollar in the parallel market, Naira hits N500 to $1 at the forward market, Naira hits N509 to the dollar at forwards market, demand for the U.S dollar climbs up, Naira hits $387.35 to $1 at currency spot market , Naira sells at N456, Nigeria’s Foreign Reserves drop by over $3 billion in Q1 2020, Investors and Exporters (I&E) window, Naira gains against the dollar, CBN close in on currency speculators

    Monday,12th April 2021: The naira appreciated against the dollar at the parallel market on Monday, 12th April 2021 to close at N482 to a dollar. This represents a N3 gain when compared to the N485/$1 that was recorded on Friday, April 9, 2021.

    Meanwhile, the exchange rate between Naira and the US Dollar closed at N409.75/1$ in the Importers and Exporters window, where forex is traded officially.

    Naira depreciated against the US Dollar at the NAFEX window on Monday to close at N409.75/$1. This represents a 0.18% drop when compared to N409/$1 recorded on Friday, as the country’s external reserve increased by $620 million in 2 weeks.

    READ: Naira strengthens at NAFEX window as bitcoin slumps to $52k

    Trading at the official NAFEX window

    Naira depreciated against the US Dollar at the Investors and Exporters window on Monday to close at N409.75 to a dollar. This represents a 75 kobo drop when compared to N409/$1 recorded on Friday, 9th April 2021.

    • The opening indicative rate closed at N410.88 to a dollar on Monday. This represents a N1.09 drop when compared to N409.79/$1 recorded on Friday.
    • Also, an exchange rate of N420 to a dollar was the highest rate recorded during intra-day trading before it closed at N409.75/$1. It also sold for as low as N400/$1 during intra-day trading.
    • Forex turnover at the Investor and Exporters (I&E) window dropped by 17.9% on Monday, 12th April 2021.
    • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover declined from $55.21 million recorded on Friday, April 9, 2021, to $45.35 million on Monday, April 12, 2021.

    READ: Naira appreciates at NAFEX as Nigeria’s external reserve is set to get a boost

    Cryptocurrency watch

    The world’s most popular digital currency, bitcoin, rose by as much as 2.6% to $61,229 on Monday, nearing an all-time high as bullish sentiment gathered steam ahead of listing by the largest US cryptocurrency exchange.

    • The cryptocurrency is up almost nine times in the past year, a return that towers above that of more familiar assets like equities or bullion.
    • Against the backdrop of Wall Street’s growing embrace of crypto, the direct listing of digital-token exchange Coinbase Global Inc. is generating a lot of interest.
    • Coinbase is moving towards a $100 billion valuation as it is due to go public on the Nasdaq on April 14, the first listing of its kind for a major cryptocurrency company and a test of investor appetite for other start-ups in the sector.
    • The digital currency has been widely adopted by many, replacing gold as the global digital-reserve asset.
    • Meanwhile, exchange tokens, such as Binance Coin, are seeing their value rise ahead of Coinbase’s public debut as well. Binance Coin, known as BNB, rose 23% on Monday, according to CoinMarketCap.com. Huobi Token and KuCoin Token, among others, also gained.

    READ: Best performing mining, industrial and consumer goods stocks from last week

    Sigma Pensions

    Oil price gain

    Brent crude oil price rose on Monday evening as it closed at $63.34 per barrel, indicating a 0.51% increase compared to $63.02 recorded at the close of trade on Sunday on expectations of strong economic recovery.

    • Oil prices recorded an increase early on Monday, with WTI Crude topping $60 a barrel for the first time in a week after the Federal Reserve Chairman, Jerome Powell, said that the outlook on the U.S. economy had brightened substantially.
    • A weaker U.S. dollar also added to investors’ appetite for crude, while another claim from the Yemeni rebel group, the Houthis that they had targeted oil facilities of Aramco in Saudi Arabia further supported prices.
    • Saxo Bank analysts said that the prospect for stronger economic growth helped to offset the impact of a resurgent coronavirus just as OPEC+ prepares to ease production cuts.
    • Brent Crude closed at $63.34 (+0.09%), WTI Crude closed at $59.75 indicating 0.08% gain, Bonny Light, $62.20 (+1.06%), OPEC Basket (-0.13%) to close at $61.14 while Natural gas dropped by 0.27% to close at $2.554.

    External reserve

    Nigeria’s external reserve gained $30 million on Friday, 9th April 2021 to close at $35.036 billion, being the highest external reserve position recorded in over a month.

    • This indicates a 0.09% increase when compared to $35.006 billion recorded on Thursday, 8th April 2021.
    • It also represents an increase in the country’s external reserve position for the 14th consecutive day, having endured a significant downturn earlier in the year. Nigeria’s reserve has added a total of about $620 million in 14 days.
    • This recent increase in Nigeria’s external reserve could however be attributed to the increase in crude oil prices recorded earlier in March before the recent bearish trade in the crude market.
    • It could be attributed to the possible increase in diaspora remittance as the CBN offers incentives for every unit of a dollar received in Nigeria from diaspora remittance.
    • The external reserve is likely to get a further boost, as the Federal Government recently announced plans to issue $500 million Eurobonds for 2021.

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    Currencies

    Naira appreciates at NAFEX as Nigeria’s external reserve is set to get a boost

    Naira gained against the US Dollar at the NAFEX window on Friday to close at N409/$1.

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    on

    Naira falls across forex markets as businesses resume after public holidays

    Friday, 9th April 2021: The exchange rate between Naira and the US Dollar closed at N409/1$ in the Importers and Exporters window, where forex is traded officially.

    Naira gained against the US Dollar at the NAFEX window on Friday to close at N409/$1. This represents a 0.16% gain when compared to N409.65/$1 recorded on Thursday, as the country’s external reserve is set to receive a boost with the planned issuance of $500 million Eurobonds.

    Meanwhile, the naira maintained stability at the parallel market on Friday, 9th April, 2021 to close at N485 to a dollar, the same rate as maintained since last week.

    READ: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

    Trading at the official NAFEX window

    Naira appreciated against the US Dollar at the Investors and Exporters window on Friday to close at N409 to a dollar. This represents a 65 kobo gain when compared to N409.65/$1 recorded on Thursday, 8th April 2021.

    • The opening indicative rate closed at N409.79 to a dollar on Friday. This represents a 71 kobo gain when compared to N410.50/$1 recorded on Thursday.
    • Also, an exchange rate of N420 to a dollar was the highest rate recorded during intra-day trading before it closed at N409/$1. It also sold for as low as N395/$1 during intra-day trading.
    • Forex turnover at the Investor and Exporters (I&E) window dropped by 41.1% on Friday, 9th April 2021.
    • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover declined from $93.69 million recorded on Thursday, April 8, 2021, to $55.21 million on Friday, April 9, 2021.

    READ: Naira gains at NAFEX as oil prices record biggest single day loss in 11 months

    Cryptocurrency watch

    The world’s most popular digital currency, bitcoin recorded a 3.05% increase in value on Saturday evening, 10th April 2021.

    • Bitcoin went up by 3.05% to trade at $59,907 on Saturday evening, compared to $58,135 recorded at the close of trade on Friday.
    • This is coming after it had risen to $61,222.22 on Saturday, its highest in nearly a month, propelled by talks of constrained new supplies against evidence of wider adoption.
    • Bitcoin (BTC) is up 116% from the year’s low of $27,734 on January 4. It crossed the $60,000 mark for the first time on March 13, hitting a record $61,781.83 on Bitstamp exchange, just after U.S. President Joe Biden signed his $1.9 trillion fiscal stimulus package into law.
    • The digital currency has been widely adopted by many, replacing gold as the global digital-reserve asset.

    READ: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

    Sigma Pensions

    Oil price gain

    Brent crude oil price declined on Sunday evening as it closed at $63.02 per barrel, indicating a 0.28% drop compared to $63.2 recorded at the close of trade on Friday.

    • This is as the fall in oil prices especially towards the end of last week can be attributed to demand concerns and Covid-19 lockdowns in some major economies, due to a spike in infections.
    • The Russian government has said that the coronavirus pandemic could continue to impact on global oil demand until 2024.
    • Crude oil prices had recorded a marginal increase during the week despite the decision of the OPEC+ to ease production cuts in the coming months. However, US Shale Giant has commended the OPEC+ group for bringing supply and demand back to balance.
    • Brent Crude closed at $63.02 (+0.11%), WTI Crude closed at $59.39 indicating 0.12% gain, Bonny Light, $61.55 (+0.46%), OPEC Basket (+0.89%) to close at $61.22 while Natural gas gained 0.67% to close at $2.543.

    External reserve

    Nigeria’s external reserve gained $29 million on Thursday, 8th April 2021 to close at $35.006 billion, being the highest external reserve position recorded in over a month.

    • This indicates a 0.08% increase when compared to $34.977 billion recorded on Wednesday, 7th April 2021.
    • It also represents an increase in the country’s external reserve position for the 13th consecutive day, having endured a significant downturn earlier in the year. Nigeria’s reserve has added a total of about $590 million in 13 days.
    • This recent increase in Nigeria’s external reserve could however be attributed to the increase in crude oil prices recorded earlier in March before the recent bearish trade in the crude market.
    • It could be attributed to the possible increase in diaspora remittance as the CBN offers incentives for every unit of a dollar received in Nigeria from diaspora remittance.
    • The external reserve is likely to get further boost as the Federal Government recently announced plans to issue $500 million Eurobonds for 2021.

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