Naira steady as oil output slips and remittances fall

After hitting a four year low on Monday, the naira has staged a minor rebound due to a broadly weaker dollar.

Nigeria’s central bank weakened the naira for the third time this year amid dollar shortages and lower than anticipated foreign currency inflows.

Although the local currency weakened to N500 in the parallel markets, prices are trading around N470 and could extend gains in the week ahead if the dollar extends its steep descent.

However, given the fact that Nigeria has experienced a fall in foreign exchange inflows, this is likely to limit the naira’s upside.

According to the Nigerian National Petroleum Corporation (NNPC), production of crude and condensates slide month on month in September. Production fell by just over three percent to 1.594 million b/d, further clouding the country’s growth prospects.

It must be kept in mind that Nigeria pledged to cut production in August and September to compensate for pumping more than its OPEC+ quota. The drop in production is likely to hit export earnings, government revenues, and the ability for the CBN to continue defending the naira.

Speaking of oil, OPEC and Russia have finally struck a cautious deal to boost oil supply from January after the initial disagreements. Producers agreed to raise output by 500,000 barrels a day in January, far below the two million barrel per day initially agreed. Future output levels are set to be decided at monthly ministerial meetings.

Oil prices welcomed the news, with WTI pushing beyond the $46.00 level while Brent approached $50. Positive news on the vaccine front and optimism around the global economy recovering may translate to higher oil prices in the week ahead.

In other news, diaspora remittances to Nigeria have dropped significantly according to the CBN Governor Godwin Emefiele. Given how remittances have dropped by about 40 percent in Q2 to $3.4 billion, this may impact dollar liquidity and compound to the themes pressuring the country.

Outside of Nigeria, the United Kingdom became the first country in the world to approve the Pfizer/BioNtech COVID-19 vaccine. Gold prices staged an incredible rebound this week while the Euro blasted above key resistance to hit levels not seen since April 2018.

Despite the surging coronavirus cases in the United States and restrictions in Europe, the mood across markets remains encouraging amid positive vaccine developments. It will be interesting to see whether this positive vibe rolls over into the new trading week.