$30 and you.
Oil markets have tanked with prices hitting the $30 mark. Equity markets across the globe are also tanking. So how does this affect Nigeria and you?
Oil markets have tanked with prices hitting the $30 mark. Equity markets across the globe are also tanking. So how does this affect Nigeria and you?
The drop in price is largely due to two factors: Lower demand due to the corona virus and what seems to be the start of a price war between Saudi Arabia and Russia.
For oil producing countries, cutting production volumes is a way of keeping the price of crude in a band.
Russia has declined doing so as a form of retaliation against US shale producers.
Russia has declined doing so as a form of retaliation against US shale producers.
Saudi Arabia on its part has lowered its selling price for the month of April by about $6 to $8.
A move some analysts interpret as a prelude to flooding the market with more crude.
A move some analysts interpret as a prelude to flooding the market with more crude.
For Nigeria, lower crude oil prices hit in two ways.
Lower revenue for the three tiers of government and somewhat more importantly lower dollar earnings.
Lower revenue for the three tiers of government and somewhat more importantly lower dollar earnings.
The CBN Governor Godwin Emefiele had hinted that the current exchange rate would be maintained as long as international crude oil prices are above $45 a barrel and the country’s external reserves are above $30 billion.
If the current price range holds for over the next few months, those conditions may change soon.
Lower crude oil earnings means fewer dollars available. The CBN would be faced with two options.
Cut down on dollar allocations to various parties or devalue the exchange rate.
Lower crude oil earnings means fewer dollars available. The CBN would be faced with two options.
Cut down on dollar allocations to various parties or devalue the exchange rate.
Devaluation means a country makes a conscious decision to lower its currency in a fixed or semi fixed exchange rate system.
A devaluation means the Naira would exchange at a higher rate compared to the dollar.
That would mean imported goods and services would be more expensive.
That would mean imported goods and services would be more expensive.
Literally almost everything you can think of has a foreign exchange component.
If you have dollar obligations, that means you would need more Naira when switching to dollars.
If you have dollar obligations, that means you would need more Naira when switching to dollars.
So what can you do?
You could decide to buy units of a dollar mutual fund, which would give you some cover in the event of a devaluation.
Please note that this is no way an investment advice, but merely the opinion of the team.
You could decide to buy units of a dollar mutual fund, which would give you some cover in the event of a devaluation.
Please note that this is no way an investment advice, but merely the opinion of the team.
