Naira opens strong as foreign reserves top $49bn

The Nigerian naira opened the month of May slightly stronger as foreign reserves continue to climb, driven by fresh inflows from hydrocarbon sales and portfolio building by offshore investors.

Data from the Nigerian Foreign Exchange Market (NFEM) showed that the local currency closed at N1,373.25/US1 in May, up from its April close of N1,374.94/US1.

In the parallel market, the exchange rate appreciated by 0.36% (or N5.00/US1), settling at N1,390.00/US1 compared to N1,395.00/US$1 the previous week.

As a result, the spread between the two rates narrowed to N16.75/US1 from N19.54/US1 in the prior week. Concurrently, the Central Bank’s gross external reserves rose by US451.09 million week-on-week to hit US49.34 billion.

In the near term, the naira is expected to trade within a relatively stable range. This outlook is supported by sustained foreign inflows and broader market participation following the recently revised FX manual, which introduces greater market flexibility and eases several prior restrictions.

Elsewhere, crude oil prices declined sharply last week as easing geopolitical tensions in the Middle East reduced concerns over potential supply disruptions.

Brent crude shed 9.86% week-on-week to close at US94.87/bbl, down from US105.25/bbl in the previous week. Despite this decline, Brent’s year-to-date return remains strong at 55.91%, while its year-to-date average price stands at US$89.53/bbl.

The price drop was primarily driven by reports of progress in diplomatic engagements between the United States and Iran, which helped alleviate fears of a prolonged disruption to global oil supplies.

Market sentiment was further supported by signs of stabilization in shipping activity through the Strait of Hormuz, reducing anxieties over continued bottlenecks in one of the world’s most critical energy transit routes.

Despite the pullback in prices, geopolitical risks remain elevated. While improving diplomatic engagement between the U.S. and Iran has eased immediate supply concerns, uncertainty persists over the durability of any agreement and the pace of normalization for oil flows through the Strait of Hormuz.

Consequently, the energy market remains highly sensitive to breaking news in the Middle East and its subsequent implications for global crude supplies.
Analysts expect oil prices to remain volatile as investors monitor developments in U.S.-Iran negotiations, shipping activity through the Strait of Hormuz, and broader global supply dynamics.

While easing tensions may continue to exert downward pressure on prices, any setback in diplomatic efforts could quickly reignite supply concerns and push crude prices higher.