SAT, JULY 15 2023-theGBJournal |This week, Nigeria’s FX reserves decreased by US$2.01 million w/w to US$34.06 billion (12 July).
Analysis of CBN’s data during pre-COVID levels shows that Nigeria needs to ramp up crude oil exports to a range of 1.50mb/d – 1.70mb/d to maintain a decent level of FX reserves which can be used to support the local currency.
The preceding means that crude oil production (excluding condensates) will need to increase from the current 1.27mb/d to between 1.95mb/d – 2.15mb/d after adding the approximate 450kb/d under the Direct Sales Direct Purchases (DSDP) contract.
Analysts at Cordros Research thinks the central turning point is if Nigeria produces enough crude oil equal to or higher than its OPEC production quota, of which the extra barrels can be exported for hard currencies.
Likewise, the naira depreciated by 3.4% to N803.90/US$ at the I&E window (IEW), with total turnover at the window (as of 13 July 2023) decreasing by 22.0% WTD to US$343.69 million, as trades were consummated within the N690.00 – N818.00/USD band.
In the Forwards market, the naira rates appreciated across the 1-month (+2.1% to N784.65/US$), 3-month (+1.7% to N806.80/US$), 6-month (+3.5% to N820.49/US$), and 1-year (+5.0% to N866.75/US$) contracts.
The naira remains on the back foot against the US dollar as FX demand continues to outstrip supply. The demand for the greenback remains high as market players continue to source for FX to fulfil and clear their outstanding obligations, just as the CBN’s FX interventions remain frail.
At the same time, offshore players remain on the sidelines amidst existing challenges, including FX illiquidity, lack of flexibility in the exchange rate framework, high global interest rates, and an overvalued local currency.
Twitter-@theGBJournal|Facebook-the Government and Business Journal|email:gbj@govbusinessjournal.com| govandbusinessj@gmail.com
