Analysts have said the upward trend in the global oil price will benefit Nigeria as it will increase the country’s export earnings and reserve.
The analysts at Financial Derivatives Company Limited (FDC) in their analysis of the state of the economy said the Central Bank of Nigeria will be able to utilized the forex to reduce pressure on naira.
Brent Crude, against which Nigeria’s crude oil is benchmarked was $69 per barrel as of Friday, as tight supplies are forcing a global drain in inventories.
Also, ongoing lockdown measures, voluntary social distancing and other pandemic-related developments continue to weigh on economic activity and supply of crude oil.
FDC report said, “Oil prices are expected to maintain the upward trend on increased vaccine rollouts that is boosting hopes for global oil demand recovery.
“In addition, OPEC+ keeping its output cuts through April, tensions in Saudi Arabia and lower United States crude inventories will support prices. Brent at $68pb is 70 per cent higher than the 2021 budget benchmark ($40pb).
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“This would boost oil revenues and slow the pace of external reserves depletion in the near term. Also, increased forex inflows could taper currency pressures and boost the value of the naira.
They noted that a faster recovery in the global economy amid vaccine rollout would boost trade activities and possibly push up Nigeria’s export earnings and external reserves.
Increased oil export earnings, according to FDC, will also help the government to bridge it budget deficit.
“A boost to reserves would improve the CBN’s ability to support the naira and strengthen the government’s buffers. Oil prices will maintain the upward trend, and this will support the federal government in reducing its fiscal deficit, estimated at N5.6trn while at the same time boosting external reserves,” the report stated.
Crude Oil earnings account for over 70 per cent of total government revenue and 90 per cent of external reserves.
