Naira Reacts on Parallel Market as Global Oil Prices Rebound, Analysts Give Reasons

• Nigeria’s naira showed signs of stability as global oil prices rebounded due to tighter supply and renewed OPEC+ output discipline
• Brent crude rose to $61.97 per barrel, offering a fiscal buffer for Nigeria, which relies heavily on oil revenues
• Analysts, however, warned that without sustained production increases and structural economic reforms, the naira’s recovery may be short-lived

Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.

As global oil markets rebounded on the strength of tightened supply and ongoing geopolitical concerns, the naira made steady gains against the US dollar on Tuesday, trading at roughly N1,608 to N1,610.

This stability comes at a time when Brent crude prices have fallen sharply—down more than 15% month-on-month and over 20% since April. The decline has been largely driven by concerns about global economic growth and fears that supply may outpace demand.

However, at precisely 2:20 p.m., Nigeria’s benchmark export, Brent crude oil, rose to $61.97 per barrel, gaining approximately 2.89%.

The relative stability of the naira in the black market is seen as a sign of cautious optimism, bolstered by expectations that improved oil revenues will help ease the country’s foreign exchange liquidity constraints.

This is likely tied to recent government initiatives and interventions by the Central Bank of Nigeria (CBN), which have provided support to the naira and helped maintain key levels in both official and parallel markets.

Although a gap remains, the CBN’s efforts—such as monetary tightening and liquidity management—have been credited with reducing exchange rate volatility and restoring some investor confidence.

While arbitrage opportunities have narrowed due to these interventions, analysts caution that foreign exchange liquidity is still insufficient to meet real demand.

Daily Sun reported that technical corrections, dip-buying, and OPEC+’s reaffirmation of its commitment to output discipline have all contributed to the recent rebound in crude prices, which has helped ease bearish sentiment around the naira.

For Nigeria, which relies on hydrocarbons for over 90% of export earnings and more than half of government revenue, the oil rally offers a welcome fiscal cushion.

According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), crude oil production (excluding condensates) rose slightly in April to an estimated 1.4 million barrels per day. Although this remains below Nigeria’s OPEC quota of 1.74 million bpd, the modest increase presents potential for higher revenue if sustained.

To ensure long-term monetary and economic stability, economists are calling for the immediate stabilisation of oil production and more coherent, coordinated policy responses.

Nigeria must also resolve its political and security challenges—especially in key oil-producing states like Rivers—if it hopes to achieve its production targets, which are critical for securing foreign exchange earnings.

Johnson Chukwu, founder of Cowry Asset Management Limited, noted that the improved pricing environment provides short-term relief for fiscal planning. However, he stressed that benefits will only be realised if the federal government increases production volumes.

“The benefits will only materialize if production volumes rise consistently and if leakages, including oil theft and refined product subsidies, are curtailed,” he explained.

Amaka Okafor, Head of Research at BlueEdge Capital, said that while sustained high oil prices offer short-term relief, Nigeria must address deeper macroeconomic vulnerabilities to stabilise the naira in the medium term.

“Even with $90 per barrel, the exchange rate may not find equilibrium unless structural issues are addressed. We need productivity growth, credible FX management, and fiscal discipline—not just oil windfalls,” Okafor stated.

CBN records N13.9 trillion loss

Legit.ng reported that the Central Bank of Nigeria (CBN) recorded a N13.9 trillion loss, about $9 billion, as it tries to settle overdue contracts and prune FX liabilities on its balance sheet and save the naira in 2024.

The loss more than doubled from N6.3 trillion in 2023 as the apex bank redeemed legacy transactions to reduce outstanding forex liabilities, lowering FX exposure and boosting reserves.

In 2023, the bank published its finances to boost investor confidence and enhance transparency in its affairs and foreign exchange management.

Source: Legit.ng