- Saudi petroleum minister rules out cuts
- Again, IMF asks Nigeria to lift forex curbs as naira sustains gains
Ejiofor Alike and Obinna Chima
Following Tuesday’s meeting between President Muhammadu Buhari and the ruler of Saudi Arabia, King Salman Bin Abdulaziz Al Saud, during which they both committed to work towards a stable oil market and a “rebound of oil prices”, the Nigerian and Qatari governments have reached out to Saudi Arabia and Russia, the world’s two biggest oil producers and exporters, to cut oil output.
A presidency source informed THISDAY that the decision to push for production cuts stemmed from the lukewarm reception by the markets to last week’s news of Russia and Saudi Arabia’s decision to freeze oil output as January levels.
He said the Nigerian government, while welcoming the decision to cap output by Saudi Arabia and Russia, the announcement was insufficient to raise crude prices due to the supply glut in the market.
He said: “By OPEC estimates, there is an excess inventory of some 1 million barrels per day, so the objective it to convince Saudi Arabia and Russia to each cut production by at least 500,000 barrels per day in order to lift prices.
“We are pushing for this because even though Iran, which is currently producing about 500,000 per day and is attempting to ramp up production to pre-sanction levels, we all know it will take some months before it can increase production and exports to 1 million barrels per day due to the absence of investments when the sanctions were in place over their nuclear programme.
“So the Minister of State for Petroleum, Dr. Ibe Kachikwu, is reaching out to Russia through back channels to go beyond the output freeze by taking 500,000 barrels off the market, while his counterpart in Qatar is talking to the Saudis to do likewise.
“The target is to remove 1 million barrels per day from the markets to support prices and see if oil can stabilise at $50 per barrel.”
The presidency official disclosed that the reason Russia and Saudi were being targeted was because they are the largest producers and can afford production cuts in contrast to smaller producers.
Buhari is scheduled to visit Qatar before the end of this week and is expected to hold talks with the country’s ruler on the issue.
However, attempts to get Saudi Arabia and Russia to cut output could prove to be a hard sell, as Saudi Arabia, which has remained adamant about retaining market share and taking out costlier US shale oil producers, on Tuesday again ruled out production cuts by OPEC.
The kingdom’s oil minister, Mr. Ali bin Ibrahim Al-Naimi, who spoke at the 35th annual HIS Energy CeraWeek convention holding in Houston, Texas, said keeping production at the January levels was the beginning of a long process to raise prices but restated that member countries would not cut production even if they say they would, according to USA Today.
“If we can get all of the major producers to agree not to add additional barrels, then this high inventory we have now will probably decline in due time.
“It is not like cutting production. That is not going to happen because many countries are not going to deliver. Even if they say they will cut production, they will not deliver.
“There is no sense wasting our time seeking production cuts. That will not happen,” he said.
Al-Naimi, whose remarks on oil often moves the markets, also said that he was not concerned about global demand for oil.
“The fact is that demand was and remains strong,” he said. “You can argue over small percentage falls and rises but the bottom line is that the world demands and gets more than 90 million barrels per day of oil. In the long-term this will increase. So I have no concerns about demand. That’s why I welcome new additional supplies, including shale oil.”
However, as Nigeria continued with its push to get the oil heavy weights to agree to production cuts, the naira sustained its rise on the parallel market wednesday, when it climbed to N300 to a dollar at the end of business in Lagos, stronger than the N310 at which it sold on Tuesday.
Forex dealers and currency analysts once more attributed the significant gains on the parallel market to excess supply of the greenback in the market.
The latest appreciation of the naira, which fell to an all-time low of about N400 to a dollar last week, has boxed a lot of speculators into a corner.
THISDAY reported wednesday that speculators had attacked the currency on the premise that this would compel the central bank and Buhari to alter their stance against the devaluation of the currency.
But they were disappointed when Buhari, in Egypt at the weekend, adamantly ruled out the devaluation of the naira on the grounds that Nigeria does not have the competitive advantage to benefit from an official currency adjustment.
Meanwhile, the International Monetary Fund (IMF) has reiterated its call on Nigeria to lift its foreign exchange curbs, noting that eliminating existing macroeconomic imbalances and achieving sustained private sector-led growth require a renewed focus on ensuring the competitiveness of the economy.
As part of a credible package of policies, the fund recommended that the naira “exchange rate should be allowed to reflect market forces more and restrictions on access to foreign exchange removed, while improving the functioning of the interbank foreign exchange market (IFEM)”.
In addition, it stated that it “will be important for the regulatory and supervisory frameworks to ensure a strong and resilient financial sector that can support private sector investment across production segments (including SMEs) at reasonable financing costs”.
The multilateral institution stated this in its 2016 Article IV Mission statement on Nigeria that was posted on its website yesterday. It however stressed that the views expressed in the statement were those of its staff who visited Nigeria between December 14-17, 2015 and January 10–25, 2016, saying they do not necessarily represent the views of the IMF’s executive board.
It pointed out that Nigeria was facing the impact of a sharp decline in oil prices, adding that due to its dependence on oil revenues, the general government deficit doubled to about 3.3 per cent of GDP in 2015, despite a sharp reduction in public investment.
Nigeria’s exports dropped about 40 per cent, pushing the current account deficit to an estimated 2.4 per cent of Gross Domestic Product (GDP), with foreign portfolio flows slowing significantly, reserves fell to $28.3 billion at end-2015.
It added: “Foreign exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies.
“Coupled with fuel shortages in the first half of the year and lower investor confidence, growth is estimated to have slowed to 2.8 per cent in 2015 (from 6.3 per cent in 2014), weakening corporate balance sheets, lowering the resilience of the banking system, and likely reversing progress in reducing unemployment and poverty.
“Inflation increased to 9.6 per cent in December (up from 7.9 per cent in December 2014), above the CBN’s medium term target range of 6 – 9 per cent.
“With oil prices expected to remain low for a long time, continuing risk aversion by international investors, and downside risks in the global economy, the outlook remains challenging. The (Nigerian) authorities’ policy response has focused on seeking to support growth, while preserving international reserves.
“The draft 2016 budget envisaged, appropriately, a significant shift in the composition of fiscal spending toward capital investment while increasing the allocation for a social safety net. At the same time the CBN has eased monetary conditions.”
Furthermore, it noted that in light of the significant macroeconomic adjustment needed to address the permanent terms-of-trade shock, it would be important for Nigeria to put in place an integrated package of policies centred around: fiscal discipline; reducing external imbalances; further improving efficiency of the banking sector; and fostering strong implementation of structural reforms that will enhance competitiveness and foster inclusive growth.
According to the fund, Nigeria’s growth is projected to improve slightly to 3.2 per cent in 2016 but could rebound to 4.9 per cent in 2017, supported by an appropriate policy package that would, for example, enable priority infrastructure investments.
“Key risks to the outlook include lower-than-budgeted oil prices, shortfalls in non-oil revenues, a further deterioration in finances of state and local governments, and a resurgence in security concerns.
“Establishing medium-term fiscal policy goals that support fiscal sustainability is a priority. In particular, measures should be implemented to boost the ratio of non-oil revenue to GDP, including from improvements in revenue administration and broadening of the tax base; rationalise spending; adopt safety nets for the most vulnerable; and foster enhanced accountability and an orderly adjustment of sub-national budgets.
“Steadfast implementation of structural reforms is key. Adopting a sound Petroleum Industry Bill, including by applying the Anti-Money Laundering/Combating the Financing of Terrorism framework, will help strengthen the regulatory framework for the oil sector.
“Emphasis should be sustained on doing ‘more with less’ to improve the efficiency of public sector service delivery and create an enabling environment to attract investment,” the IMF added.
During the visits, the IMF team met with Vice-President Yemi Osinbajo, Finance Minister Kemi Adeosun, Minister of Budget and Planning Udoma Udo Udoma, CBN Governor Godwin Emefiele, senior government officials, and representatives of the private sector.