Oil Prices Fall As Markets Assess Russian Supply Challenges

Taiwo Adekeye, FMVA

March 27, 2024

Oil prices declined on Tuesday as investors took a more mixed view toward the loss of Russian refinery capacity after recent Ukrainian attacks. Oil prices edged lower after Russia’s government ordered companies to cut output in the second quarter to meet a 9 million barrels per day (bpd) target to comply with pledges to the OPEC+ consumer group. Front-month Brent crude futures due to expire on Thursday settled down by 50 cents to close at $86.25 a barrel while U.S. West Texas Intermediate (WTI) crude futures was down by 33 cents closing at $81.62.

US: The Federal Reserve records a historic loss of $114.3 billion in 2023.

The Federal Reserve recorded a net negative income of $114.3 billion in 2023, a record loss tied to expenses related to managing the U.S. central bank’s short-term interest rate target. The loss last year follows $58.8 billion in net income in 2022. The Fed has stressed repeatedly that net negative income does not impede its ability to operate or conduct monetary policy. The Fed earns income from services it provides the financial system and from interest income on securities it owns. It has earned significant profits over recent years amid very low rates and large levels of bond holdings.

India:  Current account deficit shrinks to 1.2% of GDP in the October-December period.

India’s current account deficit narrowed in the October-December quarter, largely due to higher service exports. The deficit was $10.5 billion, a 1.2% of GDP in the third quarter of 2023/24 fiscal year, compared with $11.4 billion, a 1.3% of GDP, in the preceding quarter, which was revised upwards from $8.3 billion, representing 1% of GDP. Services exports grew by 5.2% on a year-on-year basis on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially from a year ago, and it has cushioned the current account deficit (CAD). However, the merchandise trade deficit in February stood at $18.71 billion compared to $17.49 billion in January while Private transfer receipts, which are mainly remittances by Indians employed overseas, increased 2.1% on-year to $31.4 billion.

South Africa: Rand declines after employment data

South Africa’s rand weakened against the U.S.D on Tuesday after a drop in fourth quarter local employment figures, and ahead of an interest rate decision the following day. The rand traded at 18.9925 against the dollar, about 0.5% weaker than its previous close. South Africa’s formal sector employment, excluding agriculture, fell 1.8% in the fourth quarter of 2023 compared with the previous quarter. The bank is widely expected to keep its repo rate steady at 8.25%, and wait until the third quarter to start cutting while South Africa’s benchmark 2030 government bond was weaker, with the yield up 10.5 basis points to 10.570%.

Nigeria: CBN raises benchmark MPR by 200 basis points

At the end of the 294th MPC meeting that lasted two days (25/3/2024 and 26/3/2024), the Monetary Policy Committee of the CBN made an unanimous decision to raise the benchmark interest rate by 200 basis points from 22.75% to 24.75%. The bank retained the Cash Reserve Ratio (CRR) at 45%, leaving it unchanged but increased the CRR of merchant banks from 10% to 14% while retaining the liquidity ratio at 30%. However, there has been a significant appreciation and stabilization in the exchange rate between the USD and the Naira. During the interval between the last MPC meeting and the present, the exchange rate momentarily peaked at N1800/$ in the parallel market but has since settled around 1400/$.