An economist and Chief Executive Officer of the Financial Derivatives Company Limited, Mr. Bismarck Rewane, has projected that petrol price could hit N1,200 per litre in the coming days.
Rewane also predicted in his outlook for November 2024, Brent could trade at $70 per barrel in December while inflation may climb to 34 per cent.
Furthermore, he predicted that the Naira would appreciate towards N1,550/$ by January 2025.
He made these projections in his November edition of the Lagos Business School’s Breakfast Session titled: ‘Democracy on Trial! Trump – Going Back to the Future’, in which he stated that there was no economic justification for Naira to be trading at less than 30 per cent of its fair value in less than 12 months.
He said: “According to EIU crude for next year will be $74 per barrel. So, petrol price is likely to be N1,200/litre. The petrol price will be determined by the global oil price.
“The logistics cost of distribution will also influence the price. The effect of petrol prices will reduce smuggling” while official “supply of PMS to other African countries would boost forex supply.”
Declaring that the Dangote Refinery is not a White Knight, Rewane said that the anticipation by many Nigerians that the refinery would quickly resolve issues related to fuel scarcity, FOREX and high prices is now leading to frustration as these problems have persisted despite the refinery’s commissioning.
He said: “Dangote Refinery hailed as a potential game-changer for Nigeria’s oil sector, is not the ‘silver bullet’ many anticipated.
“The refinery’s pricing strategy is influenced by global crude prices and operational costs.”
Therefore, “Dangote Refinery would guarantee supply and availability, not pricing because it can only produce at cost-plus margin,” Rewane said, adding that “smuggling is inevitable” as long as Nigeria’s petrol price is cheaper compared to the neighbouring countries.
He also pointed out that since the increase in petrol price from N600/litre to N1,030/litre, “we have noticed a marked reduction in moving vehicles by 25 per cent.”
Rewane arrived at this conclusion “following our vehicular count report along Adeola Odeku the main part between the East and West of Victoria Island” in Lagos State.
The economist also averred that the Naira is undervalued by 35.18 per cent.
Naira’s fair value to the Dollar, according to him, is its Purchasing Power Parity of N1,090.24 contrary to the prevailing NAFEM rate of N1,682 per Dollar and spot parallel rate of N1,742 per Dollar.
He said that “the Naira may strengthen in January 2025. The most notable among the key issues that need urgent attention, is the exchange rate determination mechanism.
“There is no economic justification for the Naira to be trading at less than 30 per cent of its fair value in less than twelve months. We strongly believe that the Naira will recover some of its losses in January 2025.”
Rewane identified the exchange rate as the major cause of inflation in Nigeria. Therefore, “a partial recovery of the Naira will not only help reduce inflation but will curb money supply saturation in the money market.
“The MPC is likely to maintain the status quo to allow policy effects to manifest, but the October inflation data, to be released on November 15, will solidify or alter this position.”
He also pointed out that changes in crude oil production could heavily influence Nigeria’s trade balance and, consequently, its exchange rate, pointing out that periods of positive trade balance correlate with stable exchange rate while periods of high crude oil production correspond to exchange rate stability but “high oil production and prices generally lead to a trade surplus and a stronger currency while low production or prices create a trade deficit and currency depreciation.”
According to him, the best case scenario for Nigeria is for the Central Bank of Nigeria to keep “interest rates elevated until 2025; capital flow surges, regular rDAS and oil output to increase to 1.55mbpd.”
He also observed that corporate businesses are reeling under the burden of foreign exchange losses that manifested in the reported cumulative foreign exchange losses totaling N2 trillion by 10 blue chip companies, resulting in weak earnings.
According to him, most companies are living on the parent company’s foreign exchange support as the unified rate has distorted their financial statements, leading to unexpected costs.
He remarked that companies’ fixed assets that were acquired at historic prices have now fully depreciated and expired and are increasing operational inefficiencies, thereby necessitating “the need for costly maintenance and replacements grows at the prevailing market price.
In addition, “companies with foreign-currency debt are facing higher costs to service their borrowings,” he said.
Dike Onwuamaeze
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