Oil production falls to 1 million barrel per day in July

E kaaro o, Ututu Oma, Barka da Safiya - Good morning, and a warm welcome to ThinkBusiness Nigeria, your Monday – Friday dose of commentary, contexts, and insights on business and economic news that matter to you.

TGIF …. but there is the illusion of time. President Bola Tinubu inherited an awful economic situation from his predecessor. He started to deal with it through two important economic reforms.

While he recognizes that all of Nigeria’s macroeconomic instability is tied to Naira’s exchange rate, it was too simplistic to expect devaluation will fix it. As I continue to share here, both demand and supply of foreign exchange is price inelastic. Consequently, there is friction and there is no liquidity.

To avoid the runaway macroeconomic instability, with daily and increasing implications for food and energy prices, snowballing into social and political instability, it is time for the President to act, and act fast – A. Deal decisively with oil theft and production weaknesses. B. Go to the IMF / World Bank and other financial capitals of the world for loan / sale of assets to get a US $20 – 30 billion over the next six months.

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Markets

• The benchmark NGX All-Share Index (ASI) increased by 1,037.96 (1.62%) points to close at 65,205.35, representing a week loss of 0.09%, a 4-week gain of 3.91%, and an overall year-to-date gain of 27.23%. Chellarams led the gainers with 10% share price appreciation closing at NGN 4.40 per share, followed by SCOA Nigeria (9.35%), Dangote Cement (9.34%) and Thomas Wyatt Nigeria (9.32%).

• Market News – MTN Nigeria has announced that it has obtained the approval of the Securities and Exchange Commission (SEC) for the registration of ordinary shares that allows the company to issue dividends as shares to 5,192 shareholders. Under the plan, 5,192 shareholders elected to receive their FY 2022 final dividends in the form of shares, equivalent to 641,047,053 new ordinary shares of 2kobo each at N232.68 per share. This brings the total issued shares of the Company to 20,995,560,103.

• Yesterday, Brent crude fell 72 cents to US $86.69 a barrel and West Texas Intermediate crude (WTI) was down 46 cents at US $83.16, after falling by $1 earlier in the trading session.

• The uncertainty and volatility of the foreign exchange market continues. At the I&E window, Naira depreciated by 3.42%, closing at N782.88 against the US dollar. However, on the streets, Naira nears N950 as it depreciated by 2.76% reaching N930 a dollar.

• US natural gas futures fell 5% to US $2.8/MMBtu from a 5-month high hit above US $2.9 in the previous session, dragged by a bigger-than-expected storage build last week while investors continue to monitor demand and weather projections.

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National Headlines

• Oil production falls to 1 million barrel per day in July – Nigeria’s daily oil production in July fell by 13.6% to 1.08 million barrels per day compared to 1.25mbpd recorded in June. This is according to data from the Nigerian Upstream Petroleum Regulatory Commission, NUPRC. This is amid one of the strongest rallies in oil prices this year with Brent Crude reaching over US $80 in the last month. In the same period, the gap between the I & E window and street market exchange rates have widened significantly in the last two weeks, reaching about N160. In 2 – 3 presentations made in the last few weeks, I have reiterated that the greatest and quickest win for Nigeria is to deal decisively with oil theft and production weaknesses in crude oil production.

• Foreign inflows up – The Central Bank of Nigeria has reported that foreign exchange (FX) inflows into the country rose to $2.55 billion in two months following the aggregation of all exchange rate of windows of the Central Bank of Nigeria (CBN) into the Investors and Exporters (I & E) window and removal of tight restrictions. Total inflows into the I&E window increased for the second consecutive month in June to $1.41 billion from $1.14 billion in May. Meanwhile, Naira plummeted to another record low of N930/$ on the streets yesterday August 10^th .

Global Headlines

• ECOWAS Stand By Force is standing by – Following its latest Heads of State meeting in Abuja, the Economic Community of West African States (ECOWAS) has ordered its standby force to be on stand by for the purpose of restoring democratic order in Niger. ECOWAS Standby Force is part of the larger African Stanby Force (ASF). It is largely a logistical, organisational, and planning decision, and not an assembled army yet. What else do we know? First, the Senate of the Federal Republic of Nigeria has refused the permission of the Nigerian President Bola Tinubu to go to war. Second, most of the Nigerian public are against any form of war with Niger, especially given the widely accepted notion that this will be a proxy war. Third, the use of force is still in consideration, but only as a last resort.

• US inflation up but seen as good news – US inflation up by 0.2% to reach 3.2% for July 2023. However, it was seen as good news because Shelter accounted for more than 90% of the increase, increasing by 0.4%. The focus now shifts to the September meeting of the US Fed. It is now widely accepted that the Fed will pause rate hike again when it meets next month. Since March 2022, the Fed has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.

What I read this week

Title – Uncharted: How to Navigate the Future

Author – Margaret Heffernan

This week, this period, and this season, Nigeria is in Uncharted territory, so it is fitting to read a book with that title. What Heffernan has done in this book is quite interesting. Economists, and certainly me, look out for patterns because it helps us to increase the power of predictability and reduce uncertainty. Oh yes, historically, all the knowledge we often seek is to help us navigate the future better despite its uncertainties. But Heffernan showed with stories after stories that no matter the established pattern of things, random things still happen. Those that are conscious of that navigate the future better.

She said, “the future isn’t perfectly knowable and never has been”. As much as greater levels of information like we have never seen before has made us able to plan, and make well informed estimates, “the advent of globalization, coupled with pervasive communications, has made much of life complex: nonlinear and fluid, where very small effects may produce disproportional impacts”.

The story I find quite interesting is that of Irving Fisher, Roger Babson, and Warren Persons, all economists during the 1929 US economic crisis, all contacted tuberculosis, one of the most dangerous diseases at the time in the US and built their reputation on the ability to forecast the dynamics of the markets. However, “only Babson, the least scientific of the three men came out with his reputation enhanced” after the crisis. There are more recent examples in the book – the Donald Trump election and Brexit in 2016.

What these stories, experiences, and everyday lives mean, as Heffernan consistently demonstrated, is that we live in a world “where there is a lot of irreducible uncertainty”. In response to a life of so many uncertainties, Heffernan recommends that we see it as probabilities, constantly acknowledging that we can’t know all that the future holds, and with constant experiments to prepare for it.

This Week

• On Friday 11^th July 2023, the United Kingdom will release its GDP data for second quarter 2023. Britain's quarterly economic growth was confirmed at 0.1 percent in the first quarter of 2023, remaining unchanged from the previous three-month period. Analysts expects that the GDP rate for Q2 might be 0.1%.