A Review of the Nigerian Energy Industry

Rising oil prices, U.S dollar, inflation also culprits

*Oil prices rise.

OpeOluwani Akintayo

07 October 2018, Sweetcrude, Lagos — The world might just want to look away from the popular argument that cuts by the Organisation of the Petroleum Exporting Countries, OPEC, is largely responsible for rising oil prices- the U.S dollar and inflation rate are also culpable culprits.

Statistics from OPEC’s Monthly Oil Market Report, MOMR for September said on average, the US dollar further strengthened in August, particularly against emerging market currencies.

The US economy’s strong performance continues to support a relatively faster pace of monetary tightening by the US Federal Reserve, compared with other major central banks, which generally supports the dollar.

OPEC and its partners have been largely blamed for pushing the price of the International benchmark, Brent to almost $85 per barrel with the oil-cut deal. Analysts still say the price is likely to hit $100 per barrel soon.

However, OPEC’s data showed that against the euro, the dollar advanced on average by 1.2% in August and is up by 2.5% so far this year.

The dollar gained 2.3%, up 4.3% y-t-d, against the pound sterling, despite a rate hike by the Bank of England at the beginning of the month, with uncertainties related to the outcome of the Brexit negotiations continuing to drive currency movements.

In contrast, the dollar declined against the Swiss franc, down on average by 0.7% m-o-m, and against the Japanese Yen the US Dollar lost 0.3% over the month.

The aforementioned monetary tightening by the US Fed has put pressure on emerging economies, especially those facing relatively large external short-term financing needs. This has translated into some significant currency depreciation in August, specifically in the case of Turkey and Argentina.

The dollar rose m-o-m by 24.2% against the Turkish Lira – up by 54.6% y-t-d – with the threat of potential sanctions from the US adding to Turkey’s ongoing external balance problems.

Against the Argentinian peso, the US dollar rose m-o-m by 9.1%, although in the final week of the month the dollar jumped around 20%, which triggered an increase in Argentina’s Central Bank policy rate from 45% to 60%.

On average in August, the US dollar advanced against the Chinese yuan by 2.1% m-o-m and is currently up by 3.8% y-t-d.

The appreciation against the yuan eased somewhat in the middle of the month, on the prospect of renewed trade talks between the US and China.

The dollar advanced by 1.2% m-o-m against the Indian rupee and is up by 8.3% y-t-d.

At the beginning of the month the dollar advanced an additional 3%, in line with the other emerging market currencies correction.

Against commodity exporters’ currencies, the dollar advanced by 2.6% m-o-m against the Brazilian real and is up 19.4% this year. This is mainly on the uncertainty surrounding the upcoming elections, as well as the weakness of the Argentinean economy, which is one of its main trading partners.

Against the Russian ruble, the dollar increased by 5.1% in August and is up by 12.8% this year on the potential of additional sanctions.

Against the North American Free Trade Agreement, NAFTA member currencies, the US dollar decreased on average by 1.6% m-o-m against the Mexican peso and is down by 1.3% y-td on the prospect of a revised trade deal between the US and Mexico.

The US dollar also declined on average against the Canadian dollar by 0.7%, but toward the end of the month it strengthened as no major breakthroughs have emerged from trade renegotiations with Canada.

In nominal terms, the price of the ORB decreased by $1.01, or 1.4% over the month, from $73.27/b in July to $72.26/b in August.

In real terms, after accounting for inflation and currency fluctuations, the ORB decreased to $46.96/b in August, from a revised $47.26/b (base June 2001=100) the previous month.

Over the same period, the USD increased by 0.8% against the import-weighted modified Geneva I + USD basket1, while inflation increased by 0.1% m-o-m.

The U.S President, Donald Trump has constantly thrown barrages of blames on OPEC for rising oil prices, and has even gone to the extent of asking the group to increase market supplies, or face being sued.

True to his threat, the U.S Congress is currently debating a bill to revoke OPEC’s immunity and allows it to be sued.

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