Buhari's Nigeria goes UNDER as crude oil price crashes

Buhari's Nigeria goes UNDER as crude oil price crashes

Nigeria under General Muhammadu Buhari is literary going under. Nigeria’s local currency, the Naira has continued to slide against the US Dollar in the parallel market. There was rapid decent mid this week as it naira exchanged at a historic N300 per dollar in Kano, N290 in Lagos and N292 in Abuja. The previous day Naira exchange for N285 per dollar.

Nigeria's woe is rooted at the crashing crude oil price in the international market. Nigeria's economy is heavily dependent on the sale of crude largely from Biafran territory.

This is despite the recent ban announced on Monday, January 11, 2016 by the Central Bank of Nigeria, CBN, on the sales of foreign exchange to Bureau De Change operators, the currency has continued to depreciate.

Although the CBN’s decision was lauded by the private sector, the Acting President of the Association of the Bureau De Change Operators, Alhaji Aminu Gwadabe, stated that it was not going to have any effect.

He said: “There is cut of (dollar) supply to the market. The BDC sub-sector has been murdered. We are not coping. The naira is going to head northwards. There is no solution in sight.”

Buttressing Gwadabe’s position, a Professor of Financial Economics at the University of Uyo, Akwa Ibom State, Leo Ukpong, said the move by the apex ban would only weaken the Naira further.

He said: “I don’t think the stoppage of dollar sale to the BDCs will solve the problem.

“The currency will depreciate some more. This move will make the naira to weaken more as demand for dollar will skyrocket because of the short supply.”

The Head of Investment Research, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said the apex bank’s decision suggested that they wanted everybody to apply to the banks for dollars.

He said: “But we feel the pressure now will move from the BDCs to the parallel market. We will see significant spike in the value of the naira at the parallel market because the little supply to the BDCs have also helped to cushion the demand at the parallel market.

“It will further compound or increase the spread between the parallel market and the interbank market. So, it will also increase round-tripping and unethical practices within the financial system.”

Meanwhile, Nigeria is blaming Saudi Arabia for the continued fall in oil prices to the record low of $25 per barrel.

Frightened by the downward slide of crude oil, Nigeria’s top oil official, who is also the outgoing OPEC President, Emmanuel Kachikwu said the cartel is considering an emergency meeting, perhaps as soon as next month. At issue is whether OPEC would agree to cut production, a move that could help stop the crude price freefall.

“I expect to see one,” he told CNN. “I think a … majority in terms of [OPEC] membership are beginning to feel that the time has come to … have a meeting and dialogue again once more without the sort of tension that we had in Vienna on this.”

But in the same day, another member of OPEC the United Arab Emirates threw cold water on those hopes.

“I don’t think it’s fair to ask OPEC” to unilaterally cut production, said Suhail Mohammed Al Mazrouei, the UAE energy minister. He added that OPEC’s strategy is “working.”

Nigeria is blaming Saudi Arabia for the continued fall in oil
prices to the record low of $25 per barrel.

Talk of an emergency meeting earlier in the day drove big moves in oil prices, with crude initially climbing above $32 a barrel.

But the rally quickly faded and crude fell 4%, flirting with $30 after the UAE’s comments.

Led by Saudi Arabia, OPEC decided in 2014 to wage a price war with low cost producers in the U.S. and elsewhere in a bid to defend market share.

“If we do something artificial, I don’t think that’s going to last,” Al Mazrouei said.

When OPEC last met in the Austrian capital in December, it was bitterly divided and refused to cut output. The next ordinary meeting is scheduled for June 2.

Since oil prices began collapsing, oil companies have sacked hundreds of thousands of workers, and slashed investment budgets.

But the global supply glut continues, thanks in part to China’s slowing economy, and prices have continued to tumble. A strong dollar, which makes oil more expensive around the world, has fueled the slump.

Many OPEC countries are still making money at these prices but others are losing — Nigeria’s production costs are estimated at about $31 a barrel, for example.

And all, including Saudi Arabia, are suffering a huge squeeze on government revenues.

Kachikwu said most OPEC members were watching their economies “being shattered,” and something had to give.

“We need to… see how we can balance the need to protect our market share with the need for the survival of the business itself, and survival of the countries.”

An emergency meeting is no guarantee that OPEC will act to restrain supply, however.

Iran is eager to boost production this year as soon as Western sanctions are lifted — expected imminently — and it’s hard to see Saudi Arabia working with its big Mideast rival to support oil prices.

Saudi Arabia broke off diplomatic relations with Iran last week after its embassy in Tehran was attacked. That attack followed Saudi Arabia’s execution of a prominent Shiite cleric.

Still, the OPEC president believes an agreement of some form is possible.

“I think ultimately for the interest of everybody some policy change will happen,” Kachikwu said. “Now will the amount of barrels that you can take out because of that policy change necessarily make that much of a dramatic difference? Probably not, but the symbolism of the action is even more important than the volumes that are taken out of the market.”