Oil prices pose huge risk to Stocks, Naira and Economy


The price per barrel of Bonny Light Sweet Crude has now reached below the $ 100 mark which still provides a cushion of about $ 20 per barrel for the government.

The current downward trend in international oil prices calls for a re-statement of the related macroeconomic risks in Nigeria.

Oil accounted for about 95% of total merchandise exports and 70% of gross government revenue in 2013.

Nigeria has benefited now for more than five years from firm oil prices, which have offset a self-inflicted  decline in crude production.

For a good illustration of Nigeria’s vulnerability to oil prices, we hark back to Q4 2008 when the spot price for Nigeria’s Bonny Light briefly dipped below US$40/b. Fx inflows plummeted while outflows were broadly constant on the back of hearty import demand.

No CBN circulars or administrative measures could save the Naira exchange rate. The inter-bank market was frozen, and the Naira was effectively devalued by about 20% to N 147 per US dollar by February 2009.

When monthly oil revenues in the federation account fall below the budgeted   amount, the three tiers of government benefit from a drawing on the excess crude account (an augmentation).

This mechanism works only as long there is a balance in the crude account, and the latest official statement has reported a small decline to US$ 4.1 billion.

On the surface, prevailing oil prices provide a comfortable cushion of about US$20/b over the 2014 budget benchmark. In reality, however, market pressures on the exchange rate (and reserves) develop at a far earlier stage.

Also the crude oil stocks could come under pressure if the oil prices continue to decline.

Stocks such as FO , CONOIL , SEPLAT , OANDO , MRS , ETERNA , MOBIL & TOTAL are directly related to crude oil prices.

Recent weakness in these stocks is definitely due to fall in oil prices and any further decline could lead to a sell off in these stocks at the exchange.

[+] Easykobo


Leave A Reply

Optimization WordPress Plugins & Solutions by W3 EDGE
WP-Backgrounds Lite by InoPlugs Web Design and Juwelier Schönmann 1010 Wien