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Nigeria’s crude oil falls to $31.49

By Chijioke Nelson, Roseline Okere (Lagos) and Collins Olayinka (Abuja)
21 December 2015   |   2:07 am
AS the Federal Government grapples with how to salvage the economy, the continued sliding of the price of crude oil may require that its effort should be intensified...


• Govt orders special fuel supply • External trade slides by N2.49tr over forex • CBN says currency crash due to speculative attacks
AS the Federal Government grapples with how to salvage the economy, the continued sliding of the price of crude oil may require that its effort should be intensified. Indeed, Nigeria’s Bonny Light crude oil hit its lowest level at $31.49 a barrel at the weekend due to global crude oil glut at the international market. The price of Organisation of Petroleum Exporting Countries (OPEC) basket of 12 crudes stood at $31.49 a barrel compared with $32.28 it earlier recorded.

The new OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

But to ease the fuel crisis in the country, the Federal Government has directed the Pipelines and Products Marketing Company (PPMC) and Petroleum Products Pricing Regulatory Agency (PPPRA) to embark on renewed special supply intervention measures to ensure a countrywide availability of petroleum products ahead of the Yuletide and beyond.

The NNPC in a statement by the Group General Manager
Group Public Affairs Division, Ohi Alegbe, disclosed that the special supply intervention mechanism which entailed the ramping up of additional supply via massive truck-out to guarantee product penetration to the nooks and crannies of the country teed off at the weekend.

The corporation stated that daily fuel truck-out to locations such as Abuja, Kaduna, Kano, Enugu, Ibadan and Jos had been increased significantly to enhance free-flow of products across the country.

The NNPC stated that it was consolidating its strategic alliance with some major depot owners and oil marketers with strong regional logistic outlay in those areas to ensure maximum infiltration of products especially in the hinterland ahead of the forthcoming Christmas and New Year festivities.

While calling on members of the public to refrain from hoarding, product diversion and panic buying of petrol, the corporation noted that the intervention would help circumvent the challenges posed by the unavailability of pipelines for the transportation of petroleum products.

It noted that product diversion was an economic crime and warned that it would not hesitate to report offenders to the security agencies for prosecution.

Oil prices fell for a third consecutive week, dropping more than 15 per cent since the start of the month, as global supplies continued to grow.

Banks such as Goldman Sachs and Citigroup are among those that have said the oil overhang could push crude prices down to $20 levels. The Goldman Sachs Group, Inc, an American multinational investment banking firm, expects a further drop to $20 a barrel.

According to the firm, “post-OPEC oil price decline accelerated as the discord between members became more apparent and the lack of a supply response more certain. The meeting confirmed our view that it is not in OPEC’s interest to balance the market in the face of still growing higher-cost production.”

Besides, aside from the depreciation of the naira, the lingering foreign exchange (forex) crisis has led to the reduction in volume of imports and exports by N2.49 trillion as at September 2015.

Such a sharp decline in exports and marginal slide in imports also impacted negatively on the country’s international trade balance estimated at N303.1 billion quarter-on-quarter, representing a 32 per cent fall.

Already, blame has been put on currency controls introduced to support the reserves, as the 18.8 per cent fall in crude exports in third quarter (Q3) from the second quarter (Q2) records, caused the Central Bank of Nigeria (CBN) to strengthen the measures, which may have led to the decline.

The apex bank had implemented foreign-exchange restrictions since March to prop up the naira, with investors blaming the policy for exacerbating the nation’s economic slump by deterring foreign investment and preventing businesses from buying essential imports.

The total value of Nigeria’s trade in the Q3 of 2015 was N4.02 trillion, representing 7.8 per cent, less than the N4.4 trillion recorded in Q2 of 2015.

The plummeted trade record was shown by a decrease of N320.6 billion, representing 12.1 per cent in the value of exports together with a decline of N17.4 billion (one per cent) in the value of imports in comparison with figures of Q2.

According to the National Bureau of Statistics (NBS), as at September 2015, the value of trade decreased by N2.49 trillion (38.3 per cent), made up of N132.4 billion (7.3 per cent) and N2.4 trillion (50.3 per cent) fall in imports and exports respectively, when compared with the corresponding period of 2014, put around N6.52 trillion.

Nigeria’s imports, estimated at N1.68 trillion in Q3 of 2015, decreased one per cent from the N1.71 trillion in Q2, while a year-on-year decrease by N132.4 billion showed a 7.3 per decline from N1.81 trillion in 2014.

A further analysis of the imports’ constituents showed that boilers, machinery and appliances accounted for 24 per cent of the total, while mineral products, 15.3 per cent; vehicles, aircraft and parts, vessels, 8.8 per cent; products of the chemical and allied industries, 8.6 per cent; and base metals and articles took 8.4 per cent.

However, industrial supplies ranked first with N470.3 billion, representing 27.9 per cent of total imports, followed by capital goods and parts with N398.7 billion (23.6 per cent); and food and beverage, N322.8 billion (19.1 per cent).

The imports ranked from the highest, were from China, United States, Belgium, Netherlands and India, while in the order of continents, Asia came first, followed by Europe and the Americas.

However, only N65.4 billion worth of items were transacted among African countries, a 3.9 per cent of total imports, with the ECOWAS region accounting for N16.3 billion.

On the other hand, the decline in export trade profile, which stood at N2.33 trillion in Q3 2015, over N2.65 trillion in Q2 of 2015, has been attributed to a fall in crude oil exports worth N372 billion.

According to the NBS, the structure of Nigeria’s exports is still dominated by the commodity, which contributed N1.61 trillion (69 per cent) to total domestic export in 2015, while the natural gas recorded N265.2 billion in the period under review.

Other export products by Nigeria include prepared foodstuffs, beverages spirits and vinegar and tobacco.

Meanwhile, the naira, pegged to the dollar at N197 since February, has been hitting new lows at the parallel market segment popularly known as “black market” in the last few days, with persistent fall in oil prices, speculations and CBN tight capital control.

However, the currency rose in the parallel market yesterday to N255 to the dollar, against N283 it traded on Friday. The fear of its sliding further, however, heightened yesterday with the fall of Bonny Light’s price which crashed to $31.49 a barrel.

There were allegations that the apex bank advised commercial banks to limit how much customers can spend abroad using their debits cards, in an effort to save the dwindling foreign reserves.

The alleged directive, therefore, pushed the naira down further to N283 to the dollar at the parallel market segment in the Ikeja, Festac and Victoria Island areas.

But the CBN has reiterated that the assessed pressure the naira is going through is because of speculative attacks, perpetrated by those who are bent on seeing the currency being devalued, while faulting the taking of positions on the naira with a view to making excess gain from currency trading.

It also dismissed the rising call for the devaluation of the currency, especially with latest fall of the naira and oil prices, saying that no country quotes its exchange rate with reference to bureau de change rates.

The naira has been hitting lows among retail bureaux de change operators as oil prices fall and the central bank tries to curb demand to conserve its dwindling foreign reserves, which are down 14.6 percent year to date.

Already, the forex reserve was $29.4 billion as at December 17, owing to drawdowns by the central bank to defend the naira.

According to a top bank chief, the capital control embarked upon by the apex bank is not sustainable because the harder it tries, the more the oil prices crisis keep frustrating its efforts.

“CBN cannot give what it does not have and cannot give out what it has at once. It seems the control tools are fast running out and the pressure keeps piling up.

“Granted, no regulator will allow itself open to be feasted upon. But the fundamentals are not supportive. Nigeria’s foreign exchange earnings are majorly from oil and now that the source is seriously weak, what next?

“If you ask me, I would simply say allow the currency to find its level. I am a market person. The worst of the development is that the future of oil revenue keeps getting bleak. Already, one American analyst has projected a $20 before it would rebound,” the banker said.

A car dealer in Festac, Fred Igholoba, told The Guardian that his bank had just told him that it had exhausted the limit of dollar transfer for the day, asking him to come back the next day.

But a passer-by who overheard the conversation, told The Guardian that an insider source from his bank said the regulator had just advised them to limit the use of cards abroad by customers based on its foreign currency position and ability to get more.

The Director, Monetary Policy Department of the CBN, Moses Tule, had noted that those currency speculators were determined to put severe pressure on the monetary authorities expecting the apex bank to buckle and further devalue the naira.

“CBN has a responsibility for the economy and would not fold its arms while economic predators feast on the nation’s commonwealth through arbitrage,” he said.

According to him, the only rate in the currency market is N196.47/$, which sometimes oscillates to N197 and at the interbank market N199, wondering why indigenous operators in the bureau de change (BDC) segment of the market chose to make huge profits at the expense of customers in genuine need of the currency.

“While international operators such as Travelex is trading at not more than N7 above the rate, indigenous operators prefer to make profits as high as N50.

“Nigerians must be more patriotic in their dealings rather than engage in activities capable of undermining the integrity and value of the naira,” he said.

The Director of Communications Department, CBN, Alhaji Ibrahim Mu’azu, had earlier queried why a Nigerian with a genuine demand for personal and business travel allowance would resort to high price purchase than cheap ones that are official.

He said that the thriving parallel market had become the only easy means to launder money and avoid being noticed, as well as getting access to foreign exchange to buy what the person could not defend legally.

He noted that circulars to banks concerning personal and business travel allowances, school fees and medicals, among others, were being supported, reiterating that these were always available.