By John Ikani
The black liquid benchmarks had one of their worst weekly performances last week with both contracts losing over $10 a barrel on Friday, representing their largest one-day drop since April 2020.
Both benchmarks were set to reverse their four-week losing streak, posting over three per cent gain as of mid-week. However, a new variant of the coronavirus, which is reportedly vaccine-resistant, caused panic selling of the black liquid.
The sell-off was prompted by the discovery in South Africa of a new Coronavirus variant, dubbed Omicron by the World Health Organisation (WHO) last week.
First discovered in South Africa, Omicron has since been recorded in the Netherlands, Denmark, Belgium, Botswana, Germany, Hong Kong, Israel, Italy and the United Kingdom.
The WHO said it is concerned about the variant’s large number of mutations and said “preliminary evidence suggests an increased risk of re-infection” when compared with other strains of the virus.
Omicron is potentially more contagious than previous variants, but experts do not know yet if it will cause more or less severe COVID-19.
With Nigeria unable to take advantage of higher oil prices due to poor production capacity aggravated by technical disruptions, a lower oil price offers an advantage of reduced subsidy payments but lower revenue to the Federal Government.
The exchange rate between the Naira and dollar at the black market closed at about N560/$1 much weaker than the N540/$1 recorded two weeks earlier as traders cited shortage of supply as a possible reason for the dip. But as global economies react negatively to the new variant, there is palpable fear that it could trigger a ripple effect on the Nigerian economy.
Oil prices which have suffered a 13% dip in prices is an example of how this could affect the economy. Nigeria relies heavily on crude oil exports to shore up exchange rate.
When crude oil prices tank, the Nigerian economy tallies along. A drop in Nigeria’s crude oil export earnings in the final month of the last quarter of the year could widen the current account deficit which rose to a negative $424 million second quarter of 2021 from $2.1 billion in the first quarter of the year.
Nigeria earned $11 billion from crude oil exports in the second quarter of 2021, helping boost Nigeria’s foreign exchange reserves. While analysts expect Nigeria to post a current account surplus in the third quarter of this year, there are fears the fourth quarter may not measure up to previous quarters.
