By Chijioke Nelson and Roseline Okere
• U.S. crude oil import from Nigeria rises by 504,000 bpd
• Prices settle at $51.78, World Bank raises forecast to $55
The Nigeria-India upfront oil payment deal will help the Federal Government to tackle the foreign exchange (forex) crisis in the country. The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, initiated the deal during a three-day working visit to India.
In an exclusive interview with The Guardian in August, the minister had disclosed his intention to search for a market, particularly in Asia and other oil-consuming nations, with a view to shoring up the naira, while guaranteeing revenue to the government.
The success of the deal would also be a huge help for the Central Bank of Nigeria (CBN), which has made efforts to attract foreign inflows to support foreign exchange market, including the pursuit of a naira-yuan swap.
Nigeria’s external reserves, currently at $23.9 billion, will not only be shored up with a $15 billion upfront payment for crude purchase, but will also provide dollar earnings for the federal and state governments to stabilise domestic fiscal conditions and current account deficits.
At the weekend, analysts at Afrinvest Securities told The Guardian that the deal would support the monetary policy and particularly the foreign exchange market, as it would guarantee additional three months’ import cover and reduce speculative tendencies in the market.
Meanwhile, India imported about 23.7 million metric tonnes (169.2m barrels) between 2015 and 2016, accounting for about 12 per cent of the country’s total import.
According to a recent export data from the Nigerian National Petroleum Corporation, India was ranked a top export destination of Nigerian crude, with 17.6 per cent of total crude exports sold to India in 2014.
The deal would be due for signing by December, according to reports. Besides the upfront payment for crude oil, investments in the upstream and midstream sectors, particularly refining, by Indian public sector companies, it will also help to reduce Nigeria’s oil import dollar bills.
“This upfront payment provides the Indian government an opportunity to hedge against commodity price risks peradventure the proposed production cut/cap agreement by the OPEC holdsup; which may result in a rally in oil prices.
“Furthermore, the proposed investments in the midstream sector by the Indian public sector companies (if harnessed properly), coupled with the coming on board of Dangote refineries has the potential to end the supply/demand gap for petroleum products in the country,” the analysts said.
But a top government official told The Guardian that the challenge to the policy adoption would be the fear of under-production, given the unending militancy and “greed” – the tendency for some to oppose it based on future price rise.
“For me, something must give. Where we find ourselves as a country is compelling enough to give off something in order to achieve our goals. The idea is good and should be devoid of the usual politics,” the source said.
The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, expressed optimism that government would pursue this initiative, which he also described as “noble”, to logical point.
According to a finance analyst, Femi Ademola, it means that the country, besides getting the money, has sold its oil output, whether there is volatility in price or not. That means sustained earnings and guaranteed market.
Meanwhile, the United States (U.S) crude oil imports from Nigeria rose by 504,000 barrels per day (bpd) during the first half of 2016, according to the U.S. Energy Information Administration (EIA).
Also, the Nigerian National Petroleum Corporation (NNPC) said that the country’s crude oil exports to South America increased from the 854,048 barrels in April to 2.5 million barrels in June.
NNPC added that Nigeria’s crude oil export to North America increased from 9.5 million in the month of May to 12.8 million in June. Besides, the World Bank has raised its 2017 forecast for crude oil prices to $55 per barrel from $53 per barrel as members of the Organisation of Petroleum Exporting Countries (OPEC) prepare to limit production after a long period of unrestrained output.
As at yesterday, Brent crude oil prices gained by 0.77 per cent at $51.78 per barrel, while West Texas Intermediate (WTI) increased by 0.43 per cent to reach $50.85 a barrel.
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