It is no news that the Nigerian economy runs primarily on oil proceeds. Thus, any news about rising oil prices and production is considered cheery. Earlier on Monday 24th, September, news that Brent price – a benchmark for crude oil – rallied to its highest level in almost four years was seen as a positive development for the overall economy. However, the volatile nature of the oil market is a major concern for a few.
While OPEC+ supply cut has created a floor for oil prices, geopolitical tensions have also nudged the commodity higher. Nonetheless, the latest oil market rally is on the backdrop of the Joint OPEC non-OPEC Ministerial Monitoring Committee’s (JMMC) refusal to commit to an immediate production ramp-up even as U.S. sanctions on Iran is due to come into effect by Nov-18.
In our view, given the fact that Nigeria is a net exporter of crude oil, we believe the current oil market narrative is favourable for the overall economy on a net basis. However, we see a need for fiscal discipline on the part of the government, especially as excess funds might be channelled toward election spending.