The Nigerian naira tumbled amidst a struggle to find a market clearing rate across the Forex market. Reversing the previous trend, the local currency failed to hit N1,000 per US dollar support level following a flurry of projections that boosted the exchange rate outlook for the second quarter of 2024. The rapid FX spot rate depreciation at the official and informal markets drew exchange rates at both ends closer amidst the struggle to achieve the market clearing rate. The official market saw the naira close at ₦1,169.99 to the US dollar, a decrease of 1.38%, according to data from FMDQ Securities Exchange.
The levels of US dollars supplied were insufficient to meet FX demand by market participants at the Nigerian autonomous FX market. In the parallel market, the naira closed at ₦1,165 to the US dollar amidst expectations that the Central Bank of Nigeria (CBN) would sell more foreign currency to Bureau de Change (BDCs) operators or informal market currency traders.
Since the middle of 2023, the value of the naira relative to the US dollar had continously declined, and the recent appreciation of the Nigerian currency has not stopped the inflationary trends. The consumer price index in Nigeria, which gauges inflation, increased in March, rising from 31.7% in February to 33.2%, the highest level in nearly 30 years.
To stem the tide, the Central Bank of Nigeria raised its monetary policy rate twice this year by 600 basis points to 24.75%. In the global commodity market this week, oil prices nosedived amidst escalating tension in the Middle East. Oil prices declined sharply as a result of Israel and Iran’s latest power tussle. Brent crude fell to $87.47 per barrel, losing about 4.5% week on week. Additionally, West Texas Intermediate (WTI) oil, the benchmark for the United States, dropped to $83.16 per barrel. Goldman Sachs is still optimistic about the naira’s future and has projected an exchange rate of N1000 to the US dollar. It had projected a 12-month increase in the local currency to N1200 per US dollar. Amidst the apex bank’s “grossly undervalued claim,” Financial Derivative Company Limited’s analysts have also maintained that the local currency has a fair value of N910.10 per US dollar. In its expectation, Fitch Solutions expressed a belief that the Nigerian naira will pare back most of the losses it incurred over Q1 2024, ending the financial year 2024 at N1,000. Analysts noted that the naira has strengthened markedly on the official market over the past month, having reached N1,150 from N1,625 per US dollar in mid-March.
The BMI report said: “The naira is still 60.0% weaker than it was a year ago, despite being the world’s strongest-performing currency in April thus far, having appreciated by 23.0% against the US dollar.” The CBN claims that the primary driver of the rally has been stronger foreign exchange inflows subsequent to the cumulative 600 basis-point increase since February. However, analysts note that the strengthening of the naira coincides with a renewed decline in international reserves, which could be the result of the CBN intervening in the foreign exchange market to bolster the currency.
The essence of maintaining external reserves, according to several currency analysts, is to fulfil pertinent obligations. Expert opinions, however, differ regarding claims that the Apex Bank used foreign reserves to defend the naira. Even though the CBN is determined to maintain stable exchange rates, it has also denied supporting the local currency. In the same vein, the Management of Dangote Industries Limited has condemned in strong terms an online report on the quality of its diesel which is being supplied to the Nigerian market.
The Dangote Group described the allegation as false, baseless, and mischievous, stating that its refinery is designed to produce the highest quality petroleum products that meet very stringent international specifications. A statement signed and issued by the Company’s spokesperson, Mr. Anthony Chiejina, made available to newsmen, stressed that “Publications indicating that we are producing high Sulphur diesel are mischievous and designed to tarnish the image of our reputable organisation.”
Chiejina said: “the false and misleading allegations made by some media outlets that the Dangote Refinery was producing substandard diesel, which was why it reduced the price by 37 percent, is baseless and mischievous. “Until late last year, diesel imports into Nigeria were up to 7,000 parts per million (ppm) of Sulphur which has been going on for many years. Our diesel is produced currently at significantly lower levels of Sulphur. And, as such, we find baseless the allegation that the reason for reduction is linked to quality. What we are producing is 80% better than what is being imported into the country.
“Another inaccurate assertion is that Medium Level Sulphur diesel is meant for off-road use. This is a completely false statement as this would have invariably meant that all the imports in the last 20 years have been damaging equipment.
“Thirdly, diesel imports for the high Sulphur grade have been at significantly higher prices until we started operation. If indeed high Sulphur diesel is sold at lower prices, how come we never saw the lower prices until now?” The group’s spokesperson affirmed that the real reason behind the Dangote diesel price reduction was principally due to the patriotism of the management to the nation, as well as the prevailing market dynamics of supply and demand. “As the largest single-train refinery in the world, the Dangote refinery has a production capacity of 650,000 barrels per day, which is more than enough to meet the domestic demand of Nigeria and export to other countries’ economies.
“We would like to reiterate that the Dangote Refinery is designed to produce high-quality diesel that meets the national and international standards, and that the price reduction is a reflection of our efficiency and competitiveness. We are optimistic that by Q2/Q3, our diesel will have 10 ppm of Sulphur.
“We urge the public to disregard the false and malicious allegations made by some media outlets. The Dangote Refinery is committed to delivering the best products and services to the Nigerian people, and to contributing to the development and growth of the Nigerian oil and gas sector,” Chiejina said.
He noted that traders in the West, who supply the Nigerian Diesel market cannot be happy, since Dangote refinery has taken away their market.
Recall that a recent report by Bloomberg noted that Dangote oil refinery is slowly grinding into gear. It added that Dangote has been shipping products in recent weeks while readying two units to enable petrol output that will deliver a long-promised transformation of the fuel market both in Nigeria and the region, according to analysts.
“Dangote is going to influence Atlantic Basin gasoline markets this summer and for the rest of the year. When the Residue Fluid Catalytic Cracking (RFCC) comes online, that’ll really shake things up because it alters the West African gasoline (petrol) supply balance,” said Alan Gelder, Vice President of Refining, Chemicals, and Oil Markets at the consultancy firm, Wood Mackenzie. Dangote Industries said earlier this month that gasoline deliveries will start in May.
