Plans by the OPEC to cut crude oil production by 9.7 million by May 1, 2020 will have little or no impact on the stability of the naira against the greenback. Analysts insist that the local currency will continue to come under pressure despite the proposed oil production cut.
Head of Research at Afrinvest Securities, Abiodun Keripe, said a second level naira devaluation will still happen as companies begin to make more demand for dollar to cover import of goods and services after the COVID-19 lockdown.
In emailed report to investors, Trading Desk Manager, at AZA Murega Mungai said further devaluation of the Naira is imminent.
“The naira tumbled to its weakest level in five years in the parallel market at 415 per dollar, widening the gap with an official rate of 380. Given Nigeria’s reliance on crude for 90 per cent of foreign exchange revenue, all eyes are on the oil markets. The extended drop in oil prices today will increase pressure on the naira, with continuation around the $25 a barrel levels posing a risk of further devaluation”.
In a watershed moment for the oil and gas industry, OPEC and its allies in the OPEC+ group finalized a deal on Easter Sunday that, in conjunction with efforts from the G20 and International Energy Agency, could see up to 20 million barrels of oil per day removed from a severely oversupplied oil market. The deal is set to boost the oil price and provide some much-needed stability for an industry in crisis.
Initially announced Thursday, the agreement was delayed as Mexico refused their share of production cuts. The original OPEC+ deal would have seen a cut of 10 million barrels of crude per day from an October 2018 baseline, for an initial two-month period. With OPEC+ letting Mexico off the hook, the official OPEC+ cut now stands at 9.7 million barrels, as Mexico agrees to cut 100,000 barrels per day instead of 400,000 barrels per day.
The CBN had in March, devalued the naira to N380 to a dollar. The devaluation came after over three years of push from financial market managers, the World Bank and International Monetary Fund for the local currency to be devalued.
They insisted that with drop in foreign exchange reserves and decline in Nigeria’s dollar earnings over fall in crude oil prices, Nigeria had no option but to devalue its currency.
The CBN also adopted a unified exchange rate, and pushed the official rate of the naira to N376 to dollar for International Money Transfer Operators rate to banks; N377 to dollar for banks’ dollar sale to CBN and pegged CBN’s dollar sales to banks at N378.
