Despite oil price rally, Nigeria’s foreign reserves shed $1.19bn

Despite oil price rally, Nigeria’s foreign reserves fell by $1.2 billion between January 25 and February 22.

The reserves rose to $36.5 billion on January 25th and fell to $35.3 billion on February 22nd when it was last updated, checks by PREMIUM TIMES showed Wednesday afternoon.

This means that the reserves recorded a 3.27 per cent fall within the period under review.

Before recording a gradual slump, the reserves had peaked at $36.5 billion from $35.4 billion at the start of the new year. The rise followed an upward trend in the reserve figures, a pattern that began mid-December 2020, buoyed by a steady rise in oil prices in the international market.

It was unclear why the reserves fell at a time of rising crude oil prices, although similar declines in the past were attributed to the interventions by the apex bank to stabilise the exchange rate.

Efforts to reach the Central Bank of Nigeria’s spokesperson, Osita Nwasinobi, on Wednesday were unsuccessful as his known line failed to connect.

Slump

Foreign exchange reserves are assets held on reserve by a monetary authority in foreign currencies, quite often used to back liabilities and influence monetary policies. They could be in the form of foreign banknotes, deposits, bonds, treasury bills and other foreign government securities.

By virtue of statute, Nigeria’s external reserves are segregated into three distinctive portions, namely the CBN, the Federal Government of Nigeria (FGN) and federation reflecting ownership of the reserves.

Oil revenue constitutes about 60 per cent of government’s revenue and 90 per cent of Nigeria’s source of foreign exchange earnings, even though it accounts for just 9 per cent of the nation’s GDP.

In the first half of last year, oil prices plummeted in the global market as countries of the world grappled with the outbreak of the coronavirus pandemic. Amid lockdowns and restrictions on international flight, demand for oil reduced and prices crashed.

On April 20th, 2020, the price of West Texas Intermediate crude oil slumped into negative for the first time in history, falling to negative 37.63 U.S. dollars per barrel.

But in the last quarter of 2020, oil price rally built steam as coronavirus vaccine rollouts began in parts of the world.

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In its last economic outlook, the International Monetary Fund (IMF) projected a 21 per cent rebound in crude oil prices in 2021.

On Monday, analysts at Goldman Sachs raised the price forecast of crude oil by $10 per barrel for the second and third quarters of 2021, basing the prediction on the fall in supply and rising costs.

The US bank said that Brent is likely to average $65/bl in the second quarter and $75/bl in the third quarter. Its previous forecasts were $10/bl lower in each case.

Last week, oil price rose to its highest in 13 months amidst fears of increased tension in the Middle East, and the easing of lockdowns in the United States.

Brent crude was up 1.6 per cent to $63.45 a barrel at 0806 GMT, after climbing to a session high of $63.76, the highest since January 22, 2020.

In its GDP report last week, the nation’s statistics bureau said the oil sector contributed 5.87 per cent to Nigeria’s total real GDP in Q4 2020.

As of press time Wednesday afternoon, Brent crude was up 0.67 per cent at $65.81 dollar per barrel.