The foreign exchange reserves are starting to progressively increase in the context of low oil prices after falling for four months in a row.
The country’s external reserves have declined in the first four months of the year, standing at $37.9bn at the end of April. This decline is attributed to a significant drop in crude oil prices, which fell by 16.74 per cent this year, from $73.29 per barrel on January 2 to $62.78 per barrel as of May 31.
The decline in oil prices is linked to the decision by the Organisation of the Petroleum Exporting Countries and allies, including Russia, to increase production by nearly one million barrels per day (1 mbbl/d) from April to June.
The ongoing decline in oil prices is shaped by a delicate balance of supply-side adjustments, demand uncertainties, and strategic manoeuvres from influential players like Saudi Arabia.
With The Wall Street Journal projecting Brent crude could close 2025 below $50 per barrel, Nigerian policymakers face a formidable challenge in navigating the economic implications.”
At $50 per barrel and a production level of 1.5 million barrels per day (mbpd), Nigeria’s oil revenue is set to fall 10 per cent short of its fiscal breakeven point. This shortfall could push the fiscal deficit to six to seven per cent of GDP, exacerbating inflationary pressures.
Meanwhile, sources indicate that in an upcoming meeting, eight OPEC+ countries may deliberate on a potential output increase of 411,000 bpd for July.
These supply increases come at a time of mounting global economic headwinds, including a tariff war initiated by the United States.
Rising supply levels have weighed on Middle Eastern crude benchmarks. As of May 27, the average cash Dubai premium to swaps stood at $1.21 per barrel—down $0.45 from April’s average.
Saudi Aramco, the state-owned oil giant, sets its crude prices based on customer feedback and recent market trends, factoring in changes in oil values, product yields, and refined product prices.
The depletion of the country’s external reserves by 5.91 per cent this year, from $40.88bn in January 2 to $38.47bn on May 29, was exacerbated by Nigeria’s oil production, which has been oscillating this year.
Crude oil provide over 90 per cent of the country’s forex supply, supported by diasporan remittance.
The oil production that averaged 1.54 barrels per day in January dropped to 1.47mbd and 1.4mbd in February and March, respectively, before recovering to 1.49mbd in April. This contributed to putting pressure on the country’s external reserves.
Things appear to be looking up again, and the pressure on external reserves is beginning to ease, with a steady rise from $37.93bn on April 14 to $38.46bn on May 29.
Thanks to the Central Bank of Nigeria’s countermeasures to reduce the impact of the global oil crisis on the domestic economy.
The apex bank is implementing measures to enhance Nigeria’s export potential by promoting backward integration principles aimed at reducing the import of items that can be produced locally, as well as simplifying dollar remittances to the domestic economy for Nigerians in the diaspora.
Drawing from China’s economic strategy, the apex bank stated that Nigeria’s competitive exchange rate can drive export-led growth.
To maximise this potential, businesses are expected to pursue export-oriented strategies by focusing on high-growth sectors such as agriculture, manufacturing, and creative industries. Additionally, strengthening domestic production through import-substitution models can reduce reliance on expensive imports and enhance economic resilience. A shift towards value addition—moving from raw material exports to processed goods—will further boost foreign exchange earnings.
