As oil prices continue to reflect uncertainty, Organization of the Petroleum Exporting Countries, (OPEC) finds itself in a no-win situation with prices almost certainly to soften over the next year.
This would obviously be dire for the value and strength of the Nigerian Naira and for Government spending.
Over the last year, OPEC has been trying hard to bolster prices through agreements within the member countries (with some collaboration at least on paper with Russia) by focusing on cutting supply.
This is a shaky agreement which has benefited Nigeria in the short term due to the fact that Nigeria has been exempted from any of the cuts so far.
However, the higher price has encouraged US shale oil back into the market and has meant temptation aplenty for other country producers to produce more than their quota.
On the other hand, allowing oversupply crashing oil prices and hurts everyone, including the bigger and more influential players in the oil cartel such as Saudi Arabia and Qatar.
So what happens now? Damned if they restrict production as it encourages the Americans with the capacity to produce 9 million barrels per day, damned if they don’t as prices will drop through oversupply from it’s member countries.
For Nigeria, a mere pawn in OPEC’s game, this can only mean bad news as it is tough to envisage a scenario under which prices do not fall.
http://www.fxmallam.com/wp-content/uploads/2017/05/OPEC-2.jpg360640adminhttp://www.fxmallam.com/wp-content/uploads/2016/09/LogoScopic.jpgadmin2017-05-11 10:02:582017-05-11 10:13:25OPEC: Damned if they do, damned if they don’t - Naira Insider
http://www.fxmallam.com/wp-content/uploads/2016/04/dollars_pixabay.jpeg425730adminhttp://www.fxmallam.com/wp-content/uploads/2016/09/LogoScopic.jpgadmin2017-05-05 10:18:302017-05-05 10:27:26Commentary: Fake news alert: Japanese to invest $30bn in Nigeria - Naira Insider
Oil prices are down a further 3% on Friday after a 5% crash on Thursday. It appears OPEC driven supply cuts are not sustaining prices as US shale Oil ramps up, Libya production hits and doubts surround the Russian cuts.
Forward contracts suggest the drop will be sustained or has further to go.
All this was predicted by Naira Insider weeks ago.
Big Oil companies in the last few days have announced good results proving that through cost cutting and efficiencies, they can continue production at under $50 per barrel prices.
All this adds up to bad news for the Naira.
The price inelasticity between oil and Naira will be proven yet again over the next few weeks and the Central Bank of Nigeria (CBN) will have to step in dramatically to defend the Naira.
The interesting questions now are; how long and how hard is the Oil price fall?
And how long can CBN continue to parachute dollars into the Naira market?