How crude theft is fueling Naira instability at FX market

The naira has fallen to a record low of N740 to $1 on the black market as a result of Nigeria’s inability to profit from recently high oil prices due to widespread oil theft.

Without international assistance and coordination, oil theft in Nigeria will keep hampering the nation’s chances of obtaining enough forex ‘ammunition” to keep the naira stable

The Central Bank of Nigeria’s Monetary Policy Committee acknowledged in the first quarter of 2022 that the impact of rising oil theft on the economy is preventing the country from building up its foreign reserves.

“The committee highlighted, with deep concern, the unparalleled rate of oil theft documented in recent times and its crippling impact on government revenue and accretion to reserves,” the CBN governor, Godwin Emefiele, stated as he read from his prepared remarks.

Oil and gas contributed 90 per cent of Nigeria’s foreign exchange earnings in the first quarter of 2022, a significant dependency for Nigeria’s forex stability. The rise in oil and gas inflows is correlated to a stronger naira and vice n versa.

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According to Mele Kyari, group chief executive officer, of NNPC Ltd, illicit operations had severely hampered operations at the Brass and Bonny terminals. “When you conduct a reality check,” he said, “the cumulative consequence is that you have lost 600,000 barrels (of crude) per day.

Nigeria produced a pitiful 927,000 barrels per day in September, compared to the 1.826 million barrels per day that OPEC had allowed.

According to the Atlantic Council, a US research think tank. Still, it is estimated to be between $3 billion and $8 billion a year.

After Angola overtook Nigeria as the continent’s top petroleum producer in 2016, it is now ranked third after losing second place to war-torn Libya in August when production fell to just over 900,000 bpd, the lowest level in 25 years.

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If the loss had been curbed, it might have enabled the nation’s cash-strapped federating units to launch significant initiatives that could have increased productivity.

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According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria lost $1 billion in revenue during the first quarter of this year, which is related to the nation’s underproduction, warning that the situation posed a threat to the economy of Africa’s top producer.

NUPRC Chief Executive, Gbenga Komolafe, estimates that 132 million barrels of oil were exported in the first quarter of 2022 out of 141 million barrels produced, translating to nine million barrels of crude oil being lost to theft.

Due to this, Nigeria cannot meet the demand for foreign exchange. On the other hand, Nigeria is attempting to limit and constrain the supply, which has resulted in a significant number of genuine requests for foreign exchange being diverted to the black market.