The naira’s recent stability against the dollar on the parallel market looks likely to persist in the coming weeks, as falling output drove oil prices to a new high this year. The naira was broadly flat at N321 to the dollar on the parallel market yesterday against the N322 to a dollar last week. The local currency held steady around the official peg of N197 at the interbank market.
There had been speculations in industry circles that the signing of the 2016 budget by President Muhammadu Buhari – expected to take place next week – would result in the naira falling against the greenback. However, the recovery in oil prices seems to have bolstered the naira. Oil hit its highest level last Wednesday, driven by a falling dollar and evidence of declining U.S. supply, putting the price on course for its strongest monthly performance since last April.
The prospect of an agreement among the world’s largest exporters to limit production evaporated almost two weeks ago when a meeting between the Organisation of Petroleum Exporting Countries (OPEC) members and their non-OPEC counterparts ended in stalemate. Since then, Brent has hit its highest since November and, aided by further evidence of declining output anywhere from the U.S. shale basin to the North Sea, attracted fresh investment cash.
The World Bank had on Tuesday raised its 2016 forecast for crude oil prices to $41 per barrel from $37 per barrel in its latest Commodity Markets Outlook, stating that oversupply in markets is expected to recede. The crude oil market recovered from a low of $25 per barrel in mid- January to $40 per barrel this month, following production disruptions in Iraq and Nigeria and a decline in non-OPEC members output, mainly US shale.
“We expect slightly higher prices for energy commodities over the course of the year, as markets rebalance after a period of oversupply,” senior economist and lead author of the Commodities Markets Outlook, John Baffes, said in the report. “Still, energy prices could fall further if OPEC increases production significantly and non-OPEC production does not fall as fast as expected.”
