Naira rebounds, crude oil drop buys President Tinubu some time
Oil prices fell more than 3 per cent in the week to August 18 on concerns about slowing economic growth in China, the world’s biggest oil importer, and expectations of further US interest rate hikes. International benchmark Brent crude traded at $83.5 a barrel on Friday, down 3.1 per cent from Monday’s closing price of $86.21 a barrel.
Negative data from China, the world’s second-largest crude consumer, continues to weigh on oil prices. Investors are tired of weak retail sales and domestic industrial production data, which reflect the fragility of the country’s economic recovery.
Concerns that the US Federal Reserve has not yet completed raising interest rates to combat inflation are also growing. Higher borrowing costs can impede economic growth and, therefore, reduce aggregate demand for oil. Oil benchmarks might also maintain some moderation as seasonally weak demand enters the fall.
Moreover, the Naira rallied nearly 15 per cent higher against the dollar on the parallel market for a week, trading around N/$810 in Lagos and Abuja on Sunday morning after hitting a record high of N950/$.
The appreciation of the Naira exchange rate makes gasoline cheaper even if the international crude oil price remains unchanged.
However, the increase in Petrol prices this quarter threatens to undermine some of the country’s economic reform progress and create even more political problems for the Nigerian president as the cost of living keeps ticking upward with food inflation around 27 per cent.
The country’s oil traders have called on the federal government to address insecurity and suspend the 7.5 per cent value-added tax, VAT on diesel, as part of measures needed to impact activities in the downstream sector.
Oil markers also urged the FG to introduce measures capable of dealing with rising food and transportation costs in the country to impact the welfare of citizens affected by the deregulation recently.
President Bola Tinubu has little time as market indicators show a tight supply. Investors have started increasing their bullish bets and net long positions hit yearly highs.
Oil supply is tighter due to production cuts by the Organization of the Petroleum Exporting Countries and its allies, known collectively as OPEC+, and demand has increased, mainly due to increased travel and improved operations. Industrial activity in the world’s largest economy has supported prices and could lead to an increase in the coming weeks.
