Oil slumps to $30, OPEC splits over meeting

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… As Naira crashes to 300 against dollar

The suggestion on Tuesday by Nigeria’s Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, for an emergency meeting of the Organisation of Petroleum Exporting Countries amid the sustained oil price slump met with opposition from another member of the cartel, the United Arab Emirates.

The global benchmark Brent crude extended its decline on Tuesday, slipping towards $30 per barrel for the first time since April 2004, before rising slightly above $31 per barrel. But the pick-up was short-lived as Brent later fell below $31.

Kachikwu, who briefly served as OPEC president last year before Nigeria’s tenure expired on December 31, was quoted as saying that OPEC would soon make efforts to convene before the next scheduled meeting in June as the slump in oil prices was hurting producers, including the world’s biggest exporter, Saudi Arabia.

The 13 members of the OPEC will work toward meeting in early March, Kachikwu said in an interview in Abu Dhabi on Tuesday.

Bloomberg quoted him to have said that members were already engaged in informal discussions with some non-OPEC producers, including Russia, to join any future production cut to shore up prices, he said.

“We are definitely looking at a time frame in very early March. You will very necessarily have to have an OPEC meeting because the group first has to meet and decide on its position before having formal meetings with other producers to coordinate a cut,” he said.

Brent crude closed at $43 per barrel on the day of the last OPEC meeting on December 4, and was trading at $30.54 per barrel at 6.10pm Nigerian time on Tuesday.

OPEC, which supplies about 40 per cent of the world’s oil, decided not to cut production in December, potentially worsening a glut created after producers from the US to Russia and Saudi Arabia pumped more than demand warranted.

The UAE, one of the Gulf nations in OPEC, has moved to quash the talk of a potential emergency meeting, with its Energy Minister, Suhail bin Mohammed al-Mazrou, saying the current strategy by the cartel was working.

“I’m not convinced OPEC alone can change or can solely unilaterally change this strategy just because we have seen a low in the market,” Mazroui was quoted by Reuters as saying.

He stated that while the first half of 2016 would be tough for the oil market, there would be a gradual recovery later in the year, aided by an expected drop in non-OPEC production.

“I think all the members, including Iran, have the right to increase their production. I don’t think we are going to restrict anyone,” Mazroui said.

A former Director of Research at OPEC, Chief Mike Olorunfemi, said in a telephone interview with one of our correspondents, “If the price should go below $30, there is likelihood that OPEC will want to meet. But the Iran and Saudi Arabia tension has added a new dimension to the problem.

“So, Saudi Arabia will not really want to come and meet because the fall in oil price affects Iran more than Saudi Arabia. And wherever Saudi Arabia moves to, that is where you will find the UAE and Kuwait.”

The Head of energy Research, Ecobank Capital, Mr. Dolapo Oni, is of the view that OPEC is really not somewhere where Nigeria has a lot of clout.”

Meanwhile, Monday’s stoppage of foreign exchange sales to Bureau De Change operators by the Central Bank of Nigeria failed to lift the naira on Tuesday as the currency exchanged for N300 against the United States dollar in Kano, N290 in Lagos and N292 in Abuja.

Financial experts said the naira would decline further, while private sector operators described the move as a welcome development.

The ban was announced on Monday, when naira trading at 285 against the dollar at the parallel market from 278 on Friday.

The Acting President, Association of Bureau De Change Operators, Alhaji Aminu Gwadabe, told one of correspondents in a telephone interview that the currency traded against the greenback at 300, 290 and 292 in Kano, Lagos and Abuja a day after the CBN announcement.

“There is cut of (dollar) supply to the market. The BDC sub-sector has been murdered. We are not coping. The naira is going to head northwards. There is no solution in sight,” Gwadabe lamented.

The Head of Investment Research, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said the stoppage of forex sale to the BDCs meant that the CBN wanted everybody to apply to the banks for dollars.

He stated, “But we feel the pressure now will move from the BDCs to the parallel market. We will see significant spike in the value of the naira at the parallel market because the little supply to the BDCs have also helped to cushion the demand at the parallel market.

“It will further compound or increase the spread between the parallel market and the interbank market. So, it will also increase round-tripping and unethical practices within the financial system.”

On the lifting of the ban on cash deposits into domiciliary accounts, Ebo said, “I am still sceptical about how this will work except they are also assuring us that if you deposit it, you can consummate business with it.”

A professor of financial economics at the University of Uyo, Akwa Ibom State, Leo Ukpong, said, “I don’t think the stoppage of dollar sale to the BDCs will solve the problem. The currency will depreciate some more.

“This move will make the naira to weaken more as demand for dollar will skyrocket because of the short supply.”

Members of the organised private sector, however, applauded the CBN for the stopping the sale of dollars to the BDCs and lifting the ban on cash deposits into domiciliary accounts.

The President, Manufacturers Association of Nigeria, Dr. Frank Jacobs, said industrialists had earlier kicked against the funding of the BDCs by the central bank, adding that with the development, the forex could be channelled towards funding the real sector in terms of importation of raw materials.

On the removal of the restriction of cash deposits into domiciliary accounts, Jacobs said manufacturers were still waiting for more clarification as to how the money deposited could be utilised by the customers.

The Director-General, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Mr. Emmanuel Cobham, said the forex sale ban was a welcome development. According to him, although the BDCs are necessary in the economy, they are licensed entities and should, therefore, source for their own funds.

Also speaking on the matter, the Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, lauded the forex policy review, noting that it had addressed the concerns of economic operators. According to him, it is a source of worry that the CBN continues to maintain its official exchange rate at N199 to the dollar at a time of dwindling forex inflow.

“The pressure on the official window will persist. The risk of round-tripping and distortions in the foreign exchange market will consequently remain high,” he said.

Punch