February 14, 2022

Bullish oil prices firm up Naira value across markets

Bullish oil prices firm up Naira value across markets

•Analysts see more stable market in the short run

•Russia-Ukraine crises, OPEC+, others to determine sustainability 

•External reserves still subdued

Bullish oil prices firm up Naira value across markets

By Emeka Anaeto, Business Editor

The tight trade in the international oil market since this year may have started impacting on the domestic foreign exchange market as positive sentiment strengthens the local currency. 

But the nation’s external reserves remained under pressure despite the positive development in the exchange rate.

Financial Vanguard findings indicated that Naira strengthened at the Investors’ and Exporters’ (I&E) window as well as the parallel market end, the first time in the year.

This is the third stage in the positive trend in the foreign exchange market this year.

In the first two weeks of the year the Naira traded flat at the I&E window while losing value in the parallel market. In the last week of January and first week of February it firmed up at the I&E window while sustaining marginal depreciation in the parallel market.

But at close of trading last weekend the local currency appreciated marginally at both markets closing at N416/$ at the I&E window, about 0.1% week-on-week (WoW), gains against the USdollar after about 5.01 percent Month-on-Month (MoM) depreciation earlier in the month.

In the parallel market the dollar traded at average N563/$ as against N567/$ previous week and about N575/$ a month earlier.

Market analysts attributed the development to the bullish trading trend in the crude oil prices which reached as high as $93.01 per barrel early last week before dipping marginally by middle of the week, and picking up again to close the week at $94.6pbl.

The analysts also expect the oil market to remain tight in the weeks ahead indicating that Naira value may also maintain positive sentiment at least in the short run.

Commenting on the developments in the various markets, analysts at Afrinvest West Africa, a Lagos based investment house, last weekend stated: “Notwithstanding, oil prices are expected to remain strong on the back of rising demand and the ongoing Russia-Ukraine geopolitical tension. 

“We expect the naira to hover around current level in the coming week, barring any significant shock.”

Also at the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts rose 0.2 percent WoW to $4.9billion. 

In the last trading week, the February 2022 contract price of ¦ 448.59 instrument received strong buying interest as its total value rose 14.7 percent WoW to $78.2million from $68.2million. 

Market dealers have cited concerns concerning the Russian-Ukraine conflict, the United Arab Emirate drone attack and OPEC+ underproduction as major drivers of the bullish sentiment in the oil market. As such oil prices climbed over 17 percent MoM as at end of last week.

External Reserves

However, Nigeria’s external reserves recorded a mixed performance while the Naira firmed up during this period. The reserves declined by 0.3 percent WoW in the first week of this month to $39.9billion as outflows continue to outweigh accretion. 

In January Naira recorded mixed performance across markets. The legal tender appreciated N19.67 MoM to settle at N415.33 at the I&E window, while it depreciated N6.00 MoM trading at N566.00 at the Parallel market. 

Also activity at the I&E window dipped as the average turnover fell 40.9% MoM to $126.6billion.

Forex dealers had predicted then that in the month of February they anticipate that Naira will hover around its current rate, excepting any bolt from the blue.

Vanguard News