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Oil prices plunge over demand concerns

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Oil prices fell on Tuesday, erasing earlier gains, on concerns that the surge in coronavirus cases in the United States, the world’s biggest oil user, will limit a recovery in fuel demand.

U.S. West Texas Intermediate (WTI) crude futures fell 17 cents, or 0.4 per cent, to $40.46 a barrel at 0340 GMT, after earlier rising to as high as $40.79.

Brent crude futures declined by 19 cents, or 0.4 per cent, to $42.91, after hitting an intraday high of $43.19.

With 16 U.S. states reporting record increases in new COVID-19 case in the first five days of July, according to a Reuters tally, there is mounting concern that public health measures to limit the virus spread will curb fuel demand.

Florida is re-introducing some limits on economic reopening to grapple with rising coronavirus cases.

California and Texas, two of the most populous and economically crucial U.S. states, are also reporting high infection rates as a percentage of diagnostic tests conducted over the past week.

“The potential for demand destruction as lockdown re-instatement looks more likely are combining with concerns about OPEC+ discipline to weigh on oil prices,’’ said CMC Markets’s Chief Market Strategist, Michael McCarthy, in Sydney in an email.

The Organisation of the Petroleum Exporting Countries (OPEC) and other producers including Russia, collectively known as OPEC+, are lowering output by 9.7 million barrels per day (bpd) for a third month in July.

However, those cuts are set to taper to 7.7 million bpd starting next month, adding supply at the same time U.S. fuel demand, especially for gasoline, remains impacted by the COVID-19 outbreak.

“Summer driving demand in the U.S. is low, keeping gasoline demand subdued, and a reintroduction of lockdowns is a major headwind,’’ ANZ said in a note.

Data from the American Petroleum Institute, industry group, later Tuesday and the U.S. Energy Information Administration on Wednesday are expected to show a 100,000 barrel rise in gasoline stockpiles, six analysts polled by Reuters estimated.

The U.S. crude market faces some uncertainties from a court decision on Monday ordering the shutdown of the Dakota Access pipeline, the biggest artery transporting crude oil from North Dakota’s Bakken shale basin to Midwest and Gulf Coast regions, over environmental concerns.

Market sources in the Bakken said the closure of the 570,000-bpd pipeline, while a thorough environmental impact statement is completed, will likely divert some oil flows to transportation by rail. (Reuters/NAN)

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Naira drops by 1.3% against dollar, as CBN resumes forex sale to Bureau de Change

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The Nigerian naira eased 1.3% against the U.S. dollar on the official market on Friday, a day after the central bank said it planned to resume forex sales to retail currency operators as the country reopens its airports for international travel.

The naira opened for trade at N385.50 per dollar on the market, supported by the central bank. It later recovered to close at N381 per dollar, where it has been stuck since July, Eikon Refinitiv data showed.

The central bank in a circular on Thursday said it will restart dollar sales to bureaux de change operators from Aug. 31 after it suspended auctions in March due to a coronavirus-induced lockdown and after a 15% devaluation.

It said retail traders cannot resell dollars bought from the bank at more than N386.

The bank moved to unify the rates this month, bowing to pressure from international lenders to merge its multiple exchange rates, eliminating arbitrage which has cost the country billions in reserves as it tried to defend the naira. Reuters

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Naira strengthens against dollar‍

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Barely 24 hours the Naira was forced to a downward trajectory by dollar scarcity, it bounced back, closing at N477 to a dollar at the parallel market in Lagos.

Reports have it that the Pound Sterling and the Euro traded at N608 and N550, respectively.

The Naira, however, weakened marginally at the investor’s window, losing one point to close at N386 to a dollar.

The volume of trade at the window shrunk by 1.83 million dollars when compared to Tuesday, to close at 18.44 million dollars.

The Nigerian currency exchanged at N381 to a dollar at the official CBN window.

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Naira stable at N472/$1 in parallel market

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The exchange rate at the parallel market remained stable for the second consecutive day closing at N472/$1 on Wednesday, July 22, 2020. However, on the officially recognized NAFEX market, the forex turnover was down again by 59.1% while the exchange rate also remained stable closing at N388.17/$1.

Exchange Rates

Parallel Market: At the black market where forex is traded unofficially, the Naira remained stable closing at N472 to a dollar on Wednesday, according to information from FX tracker.

FT collates parallel market exchange rates as far back as 2017. The parallel market also caters to forex trades through wire transfers especially for buyers who cannot fulfill their dollar demands at the I&E window or the SMIS window. Exchange rate for wired transfer is often at a premium to the black market rate.

NAFEX:  The Naira also remained stable against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N388.17/$1, this the same rate that was reported on Tuesday, July 21.  The opening indicative rate was N388.65 to a dollar on Wednesday. This represents a 15 kobo drop when compared to the N388.50 to a dollar that was recorded on Tuesday.

Exchange rate disparity: The exchange rate disparity between the official NAFEX rate and back market rate still remained widen on Wednesday and is still a whopping N84. Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window).

 

We reported a few weeks ago that the government had set plans in motion to unify the multiple exchange rate in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion. The country has been under pressure from the International Monetary Fund and the World Bank for currency reforms.

Forex Turnover

Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a further decline on Wednesday, July 22, 2020, as it dropped by 59.1% day on day. According to the data tracked, forex turnover decreased from $29.77 million on Tuesday, July 21, 2020, to $12.17 million on Wednesday, July 22, 2020.

 

Forex News

The forex turnover at the NAFEX window where investors and exporters trade forex was about $1.57 billion between June 2020 and July 17, 2020, which falls short of demand according to reports. This is according to the daily market turnover data tracked from the website of the FMDQOTC within the last few weeks. The forex turnover has averaged $47 million over the last 32 days.

 

The volatility of the foreign exchange market is fueled by low forex inflow and the activities of currency speculators who are encouraged by the widening gap between the official rate and the parallel market rate.

The data from the Central Bank of Nigeria (CBN) shows a decline in the external reserve as it fell from $36.57 billion on June 3, 2020 to $36.08 billion as of July 17, 2020. The declining external reserve reduces the capacity of the CBN to intervene in the forex market, thereby putting more pressure on the market.

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