Exchange Rate: Oil, FX to Remain Closely Linked – Analysts
While the market claims the naira-dollar exchange rate has decoupled significantly from movements in oil prices, analysts say the ongoing crude rally is positive for a firmer local currency.
The oil market and FX are expected to remain closely linked, analysts at Cowry Asset Management Limited said in an investor note, adding that ongoing geopolitical risks could drive short-term volatility.
Naira had a historical negative fluctuation, with lower prices, as the nation’s hydrocarbon sales account for a large share of total FX receipts despite economic diversification.
Nigeria has stepped up crude oil production, though the sector faces challenges that continue to intermittently affect output. However, the global commodity market has seen a sharp increase in crude oil prices amidst supply risks.
Oil prices rose in late-day short-covering on Friday as investors worried about U.S. military action, as President Donald Trump presses the Islamic Republic to halt nuclear weapon development.
Brent crude rose $4.01, or 5.92% week on week, to close near $71.76 per barrel on Friday, while West Texas Intermediate (WTI) gained $3.59 to close at $666.48 per barrel.
On a weekly basis, the naira firmed up against the U.S. dollar, appreciating by 0.68% at the official window to N1,346.32 and by a stronger 4.44% in the parallel market to N1,333.28.
Spot FX rate at the official window began the week on a stronger note, gained ₦20 per US dollar to ₦1,336.0 per USD at the early part of the week, due to improved FX supply and inflows from FPIs and local participants
Later on, the Naira began to depreciate consistently amid higher demand than available supply. By Friday, the Naira closed at ₦1,346.30, gaining ₦9.1 per US dollar week on week, as external reserves rose by $555.38 million to $48.50 billion.
The surge reflects steadier foreign-exchange inflows and improved market confidence. In the oil market, crude prices rebounded after three straight weeks of losses, analysts at AIICO Capital report.
This is supported by renewed geopolitical risk following comments by President Donald Trump, who warned Iran of “serious consequences” if no deal is reached within 10–15 days.
“We expect the naira’s recent gains to support continued stability in the foreign exchange market, especially if oil prices remain elevated”, Cowry Asset Management Limited said in a report.
Analysts said rising crude prices, driven by geopolitical tensions, could sustain Nigeria’s external reserves and improve investor sentiment. The investment firm, however, warned that volatility in global oil markets and ongoing geopolitical risks may create short-term fluctuations.
“Overall, the FX and oil markets are expected to remain closely linked, with positive momentum for the naira if crude prices hold above current levels”, Cowry Asset Management Limited added. Treasury Bills Yield Falls as Investors Refill Lost Auction Bids
