Nigeria’s Oil Production Rises Marginally

Obinna Chima

Nigeria produced a total of 66.49 million barrels (mb) of crude oil and condensate for the month of January 2016, representing an average daily production of 2.14 million barrels per day.
This represents an increase of about 2.97 per cent, relative to December 2015, according to a report by FSDH Merchant Bank Limited.

Of the January 2016 production level, Joint Ventures (JVs) and Production Sharing Contracts (PSC) contributed about 29.89 per cent and 42.84 per cent respectively. Other production arrangements accounted for 27.27 per cent.

According to the data from Thomson Reuters, the Bonny Light oil price increased by 4.75 per cent to $38.37/b as at end-March 2016, from end-February 2016. However, the average price of Bonny Light was $38.91/b in March 2016, an increase of 17.80 per cent from the average price of $33.03/b recorded in February 2016.

The FSDH monthly economic report for March 2016, noted that foreign exchange restrictions put in place by the Central Bank of Nigeria (CBN), continued to insulate the external reserves from a sharp draw down from excessive demand in March 2016.

The external reserves increased marginally by 0.14 per cent to $27.86 billion as at end of March 2016, compared with end-February. However, there has not been a consistent accretion to the external reserves because of the consistent low oil price. It also noted that the fragile external reserves position undermined the ability of the CBN to defend the value of the Naira.

“The combination of external factors and domestic shocks contributed to the increase in the inflation rate into double digit in February 2016. The inflation rate in February 2016 increased to 11.38 per cent, from 9.62 per cent in January 2016. The inflation rate in February 2016 was due to the faster pace of increase in all major divisions of the Headline Index.

“The inflation rate may remain in the double digits in the short-term. The downside risk to single digit inflation rate still comes from the inadequate supply of petroleum products and the weak Naira. The inadequate infrastructure and power supply also have a tendency to keep the inflation rate in double digit. We estimate that the inflation rate would increase to 11.76 per cent in March 2016,” the report added.

However, in a separate report, the Financial Derivatives Company Limited (FDC), predicted that inflation would likely cross the 12 per cent threshold. Precisely, the firm projected a significant increase of 0.7 per cent in the March inflation number to 12.1 per cent.

“This will be the third consecutive monthly increase this year. The month of March was unique as the fuel scarcity intensified and higher transport costs filtered through to commodity prices such as beans, tomato and pepper. While our initial time series analysis projected an increase of 0.4 per cent, the severity and longevity of the prevailing fuel scarcity has distorted price levels. Our retail study showed that prices of many consumer goods have remained stubbornly high and in some cases increased in spite of consumer resistance.

“The factors that are contributing to the spike in inflation include seasonality, cost push factors, money supply and forex shortage. These factors while transient in nature are becoming more permanent. As these factors grow increasingly embedded, they are making consumers panic. Anticipated inflation is more important because of the pass through effect of increased demand and expectations of higher prices on current prices,” FDC stated.

Furthermore, it projected that the dichotomy between urban and rural prices may persist given the impact of rising transport costs and exchange rate pressures on urban prices. The price of diesel, a major determinant of food transportation costs, has increased to N130 per litre.

“As the exchange rate uncertainty continues, consumer prices are expected to remain high. In addition, with fuel scarcity expected to persist till next month in spite of NNPC’s April 7 deadline, transportation costs will continue to be elevated. Therefore, we expect inflation to still remain in the region above 11 per cent,” it added.

The CBN’s strategy to ration the foreign exchange continued in March 2016 because of insufficient supply. The demand level at the foreign exchange market is still higher than the supply with most demands being pushed to the parallel market for funding.  As at end- March 2016, the value of the naira closed at $1 /N197 and US$1 /N199.10 at the CBN window and interbank market respectively, same as in February 2016. There was improved supply of foreign exchange in the parallel market in March 2016. Conseqeuntly, the naira appreciated by 5.57 per cent at the parallel market to close at $1/N322, from $1/ N340 at end-February 2016.