Naira Rebounds as Crude Oil Prices Fall, Giving Tinubu a Breathing Space

Major petroleum product traders and other independent commodity traders might find relief from the escalating costs of gasoline imports. This respite comes in the wake of a noteworthy downturn in oil prices, marking their first weekly decline in over two months. This decline is further complemented by the strengthening of the naira.

During the week leading up to August 18, oil prices experienced a drop of more than 3%. This decline was driven by concerns revolving around the decelerating economic growth in China, the world’s largest oil importer, as well as expectations of impending US interest rate hikes. Notably, the internationally recognized benchmark Brent crude traded at $83.5 per barrel on Friday, registering a decrease of 3.1% from the Monday closing figure of $86.21 per barrel.

The minds of investors continue to grapple with the delicate balance between a global economic slowdown and constricted worldwide supply. As a result, prices are likely to remain within a relatively narrow range for the time being.

The weight of negative data emerging from China, the second-largest consumer of crude oil globally, persists in exerting downward pressure on oil prices. The investment community remains fatigued by lackluster figures in retail sales and domestic industrial production. These statistics serve as a testament to the fragile nature of the country’s ongoing economic recovery.

Concerns that the US Federal Reserve has not yet completed raising interest rates to combat inflation are also growing. Higher borrowing costs can impede economic growth and, therefore, reduce aggregate demand for oil. Oil benchmarks might also maintain some moderation as seasonally weak demand enters the fall

Moreover, the Naira rallied nearly 15% higher against the dollar on the parallel market for a week, trading around N/$810 in Lagos and Abuja on Sunday morning after hitting a record high of N950/$.

The appreciation of the Naira exchange rate makes gasoline cheaper even if the international crude oil price remains unchanged.

However, the increase in Petrol prices this quarter threatens to undermine some of the country’s economic reform progress and create even more political problems for the Nigerian president as the cost of living keeps ticking upward with food inflation around 27%.

The country’s oil traders have called on the federal government to address insecurity and suspend the 7.5% value-added tax, VAT on diesel, as part of measures needed to impact activities in the downstream sector.

Oil markers also urged the FG to introduce measures capable of dealing with rising food and transportation costs in the country to impact the welfare of citizens affected by the deregulation recently.

President Bola Tinubu has little time as market indicators show a tight supply. Investors have started increasing their bullish bets and net long positions hit yearly highs.

Oil supply is tighter due to production cuts by the Organization of the Petroleum Exporting Countries and its allies, known collectively as OPEC+, and demand has increased, mainly due to increased travel and improved operations. Industrial activity in the world’s largest economy has supported prices and could lead to an increase in the coming weeks