Oil Price Surge Lifts Naira, Strengthens External Reserves Outlook

 

Rising global oil prices are improving Nigeria’s fiscal outlook and boosting prospects for the naira and foreign reserves, as Brent crude trades above the Federal Government’s 2026 budget benchmark.

Brent crude hovered around $69 per barrel — higher than the budget reference price of $64.85 — offering potential revenue gains for Africa’s largest oil producer. Analysts say sustained price strength could support exchange rate stability, enhance foreign exchange inflows and reinforce the Central Bank of Nigeria’s (CBN) reserve buffers.

Oil prices extended their rally for a third straight session amid geopolitical tensions in the Middle East and fears of possible United States military action against Iran, a major oil producer. Brent rose 1.4 per cent to $69.34 per barrel, while U.S. West Texas Intermediate (WTI) gained 1.5 per cent to $64.13.

Market watchers warn that any disruption in the Strait of Hormuz — which handles about 20 per cent of global oil supply — could push prices sharply higher, with projections ranging from $91 to as high as $150 per barrel in a worst-case scenario. Temporary supply outages in Kazakhstan and weather disruptions in parts of the United States have also added upward pressure.

For Nigeria, higher oil prices translate directly into stronger government revenue, given that oil receipts account for more than 80 per cent of foreign exchange earnings.

The naira has responded positively in recent sessions, breaking below the N1,400/$1 mark at the official market for the first time in over a year — a key psychological threshold. Data from the Nigerian Foreign Exchange Market (NFEM) showed the currency strengthened to N1,396.99/$1, compared with N1,400.48/$1 the previous day.

Recent figures indicate a steady appreciation trend from levels above N1,420/$1 recorded in late January. The parallel market has also reflected improved sentiment, with the naira gaining about one per cent to trade near N1,454/$1, according to Cowry Asset Management Limited.

President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said the currency has shown unusual stability across segments of the market in recent months, following years of volatility.

Financial Derivatives Company Managing Director, Bismarck Rewane, estimates the naira’s fair value at about N1,257/$1 using purchasing power parity (PPP) models, suggesting the currency remains undervalued by roughly 11 per cent. He noted that exchange rates typically move toward PPP levels over a medium-term horizon.

External reserves have also strengthened. CBN data show reserves rising by over $5.8 billion to above $46 billion in January — the highest level in about eight years. The buffer now provides more than 10 months of import cover, reflecting improved inflows and tighter foreign exchange management.

Foreign capital inflows reached nearly $21 billion in the first 10 months of 2025 — a 70 per cent increase over the previous year — signaling renewed investor confidence. Diaspora remittances and non-oil exports have also recorded double-digit growth, supported by exchange rate reforms and improved market transparency.

CBN Governor Olayemi Cardoso said ongoing monetary and foreign exchange reforms have narrowed the gap between official and parallel market rates from over 60 per cent to less than two per cent, while reserves are being rebuilt through market-driven inflows rather than borrowing.

He stressed that fiscal and monetary coordination — including the end of direct deficit financing by the apex bank — is reinforcing macroeconomic stability and investor confidence.

Industry analysts say the durability of current gains will depend on reform discipline, oil production levels and sustained capital inflows through the election cycle.