The January rally in crude oil has helped to support currencies in oil producing countries including Nigeria as external reserves climb.
The Central Bank of Nigeria also benefited significantly from the rising crude oil price as Nigeria’s foreign reserves rose to $36.3 billion from $35.3 billion, a jump of around $1 billion in January alone.
The monetary authority struggled in 2020 with dwindling foreign reserves in the first half of the year.
The year 2020 was obviously a difficult year for the Federal Government’s finances after the country posted a record fiscal deficit of around N6.1 trillion and an economic recession and oil price crash derailed the government’s 2020 revenue target objectives.
However, 2021 has started brilliantly for the government as bonny light crude oil (the crude oil produced and exported in Nigeria) closed the month trading around $54.4 per barrel, an 8 percent jump from the start of the year and a 36 percent premium above the government’s crude oil price benchmark.
OPEC in its oil market report released in January 14, kept its 2021 global demand forecast little changed at 95.91 million barrels per day, compared with 95.89 million barrels per day it had forecasted in December. The forecast is still 5.9 million barrels per day higher than 2020.
While rising COVID-19 infections and additional lockdown measures are affecting most major OECD countries, “the situation in emerging economies seems to have improved lately,” OPEC said.
US Energy Information Administration (EIA) expects Brent crude oil prices to average $53 per barrel in both 2021 and 2022. “Saudi Arabia’s unilateral cut means global oil market balances will be tighter in early 2021 than previously expected,” said EIA reported. EIA expects global oil inventories will fall by 2.3 million barrel per day in the first quarter of 2021, which EIA expects will contribute to Brent prices averaging $56 barrel per day.
This means that there is still very little room for Brent crude oil prices to rise after it closed on Friday at $55 per barrel.
The external reserves at the start of 2020 was $38.5 billion before falling to a 3 year low of $33.4 billion around April and now rallying to $36.3 billion at month end January, 2021.