The U.S. dollar hit a record high against the Nigerian naira in non-deliverable forwards markets on Tuesday, after a historic oil price rout pushed U.S. crude futures below zero a day earlier.
One-year dollar/naira non-deliverable forwards stood at 498.5 points, up from Monday’s close of 492.4, Refinitiv data showed.
After yesterday’s historic crash which left the West Texas Intermediate U.S. benchmark settling at -$37, panic is beginning to spread through markets, with Brent crude oil prices plummeting by over 20 percent into the $18 range in early morning trading.
The drop, sparked by a perfect storm of COVID-19 fueled demand destruction and global crude storage facilities reaching their limits, is unlike anything markets have ever seen. And it’s left every even the most. veteran industry players scratching their heads.
From Asia to North America, all over the world oil producers and traders are looking for just one thing – a place to put their unwanted products.
Supertankers are in high demand and often left idling offshore as on-shore facilities are out of space. In the North Sea, for example, vessels have been parked for days, loaded with gasoline and jet fuel with nowhere to go.
Even the world’s largest oil storage firm, Vopak, which operates three main facilities in Singapore, Rotterdam and Fujairah, is saying they’re at capacity.
The currency in Nigeria, which relies on oil sales for 90% of foreign exchange earnings, has suffered since crude prices plunged following a disagreement between Russia and Saudi Arabia over output cuts and a slide in global demand.
The Nigerian central bank quoted the naira at 360 to the dollar on Monday, weaker than its previous peg of 306, while the rate on the interbank market moved to 380 from 360 previously.
Central Bank Governor Godwin Emefiele said in a tweet that the currency move was a price adjustment, not a devaluation.
The naira’s one-year forward price, which gives an indication of where the currency could trade in a year’s time, fell 11.3% against the dollar.
The non-deliverable forwards (NDF) market in London priced the naira at 515 to the dollar in a year’s time while naira futures contracts of the same tenor were quoted at 385.
Analysts welcomed the move to adjust the official rate of the currency and said the over-the-counter spot market exchange rate could actually be weaker than the new level of 380.
“It is clear that the central bank will be unable to maintain exchange rate stability if global oil prices remain near current lows in the months ahead,” said Cobus de Hart, senior economist at South Africa’s NKC African Economics.
Naira forwards nine months out also fell more than 11% while shorter maturities were down at least 5%.
The market differential between one-year naira forwards and futures widened to 130 naira on Monday, up from 30 naira in January, as investors raced to hedge risk.
The naira futures one-year contract offered by the central bank was revised upwards on Monday by 15 naira, traders said.
On the stock market, the main index retreated to 21,700 points on Monday, a level last seen in July 2012, after the most liquid banking shares on the exchange fell 9%.
According to the latest figures published by Johns Hopkins University, 2,494,915 cases have been detected worldwide, with 171,249 deaths and 658,009 people now recovered.
In Nigeria, there have been 665 cases, with 22 deaths and 188 people recovering from the virus.