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Oil price touches record high in Nigeria’s Naira terms

Nigeria, Angola and Russia are today earning more local currency from oil sale per barrel than at any point in history, even though even though crude prices are still languishing at less than half their peak level in dollar terms, set in 2008.

Countries such as Nigeria are all enjoying record nominal prices per barrel in local currency terms and the trend is helping repair fiscal and external deficits and rebuild foreign currency reserves, even though oil prices in dollar terms remain at $69, well below the peak of $150, set in 2008.

“This is very significant for these economies. The currency [effect] is an enormous benefit for them,” said Chris Weafer, senior partner at Macro Advisory, a Moscow-based consultancy.

Russia for example is now receiving Rbs3,930 per barrel of oil, up from just Rbs2,300 in January 2016 and comparable to what it was being paid in local currency terms at the previous peak in February 2014, when Brent crude was trading at $110 a barrel, as the first chart shows.

Nigeria is now enjoying oil prices in naira terms that are 25 per cent above their previous peak in 2012, after its decision to devalue the currency in 2016.

Likewise, Angolan revenues are 17 per cent more than their previous peak in the wake of Luanda’s decision to bow to the inevitable this month and abandon the kwanza’s dollar peg, as the third chart shows.

Kazakhstan is receiving 7 per cent more tenge per barrel than during the previous peak in 2014, following its decision to scrap its peg the following year, while the price of oil in Azerbaijani manat terms has also just gone above its high of 2008, as shown in the fourth chart.

In contrast, Gulf states such as Saudi Arabia, Kuwait and the United Arab Emirates have seen their revenues per barrel more than halve since 2008’s peak as they have rigidly maintained their currency pegs against the dollar.

“The big difference has been the currency devaluation. The Opec states have maintained their dollar peg, therefore they have suffered the full impact of the oil price decline.”

These economies are rapidly pulling out of recession. Their governments are able to fund programmes to generate growth. It means that they are in a much better position than their neighbours in the Gulf and it all comes back to FX.

However, some countries may be making less good use of their windfall of record oil prices in local currency terms, however.

“For instance in Nigeria, they maintain a fuel subsidy which means Nigerians pay less for fuel at the pump than Saudis. The more the oil price goes up, the more costly this fuel subsidy becomes. For Nigeria, it offsets many of the fiscal gains from higher oil prices,” said Charles Robertson, chief economist at Renaissance Capital. businessdayonline