Oil prices sustain rally above 2026 budget, boost Naira

Nigeria’s economic outlook is receiving renewed support as rising global oil prices and strengthening foreign exchange inflows have combined to boost the naira and lift the country’s external reserves to multi-year highs.

With Brent crude trading around $67 per barrel as of yesterday, above the Federal Government’s 2026 budget benchmark of $64.85, analysts say the sustained rally is improving Nigeria’s fiscal headroom, supporting foreign exchange buffers and creating conditions for greater exchange-rate stability.

For an economy where oil accounts for more than 80 per cent of foreign exchange earnings and roughly half of government revenues, every dollar increase above the benchmark translates directly into stronger public finances and improved external liquidity.

The latest upswing in prices therefore comes at a critical time for policymakers seeking to consolidate macroeconomic reforms, defend the naira and rebuild reserves without resorting to heavy borrowing, analysts say.

Energy analysts predict that geopolitical tensions in the Middle East could push prices even higher. A full-scale conflict affecting the Strait of Hormuz — a narrow shipping channel through which nearly 20 per cent of global oil supplies pass — could send Brent surging to between $91 and $150 per barrel within weeks, potentially delivering a further windfall to oil-exporting nations such as Nigeria.

Oil rally gathers strength

Oil markets extended gains for a third consecutive session amid growing fears that the United States could take military action against Iran, raising the risk of supply disruptions across the region.

Brent crude futures rose by 94 cents recently, or 1.4 per cent, to $69.34 per barrel, while US West Texas Intermediate (WTI) climbed 1.5 per cent to $64.13.

Beyond geopolitical tensions, unplanned outages in Kazakhstan and weather-related production disruptions in parts of the United States have tightened global supply, adding upward pressure on prices.

The combination of supply constraints, resilient Chinese demand and restrictions on Russian crude has injected a risk premium into oil markets, keeping prices elevated despite earlier expectations of a global supply surplus.

As of yesterday, Brent Crude was 67.01 while WTI Crude sold for $62.92, still showing an upward trajectory.

For Nigeria, the development offers an immediate macroeconomic cushion, according to observers.

Higher oil prices mean stronger export earnings, improved dollar liquidity, and greater capacity for the CBN to defend the naira, meet foreign exchange obligations and build external reserves.

Naira gains traction

Reflecting the improving fundamentals, the naira has staged one of its strongest rallies in over a year.

Data from the CBN show the currency trading below the psychologically significant N1,400/$1 threshold in the official Nigerian Foreign Exchange Market (NFEM) for the first time in months.

The official rate strengthened to N1,372.51/$1, up from N1,390.53/$1 the previous day according to the Nigerian Foreign Exchange Market (NFEM). This marks a notable recovery from late January levels when the currency weakened to around N1,422/$1.

Earlier in the year, the naira had hovered above N1,420/$1 before gradually appreciating to N1,418, N1,401 and eventually breaking below N1,400.

Analysts say the movement signals improving liquidity and rising investor confidence in the market-based foreign exchange framework introduced by the Cardoso-led CBN.

The appreciation has also extended to the parallel market.

According to Cowry Asset Management Limited, the naira strengthened by about 1.06 per cent to N1,454/$, reflecting improved sentiment across both official and informal segments.

President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, noted that the currency has remained relatively stable in recent months, ending years of sharp volatility that previously discouraged investors and businesses.

Some economists believe the naira still has room to strengthen further.

Managing Director of Financial Derivatives Company (FDC), Bismarck Rewane, estimates the fair value of the naira at around N1,257/$ based on purchasing power parity (PPP) calculations.

According to him, the currency remains undervalued by roughly 11 per cent and should gradually converge toward its intrinsic value over the medium term.

Speaking at the 2026 Economic Outlook organised by the Association of Corporate Treasurers of Nigeria (ACTN), Rewane explained that exchange rates typically realign with PPP levels over a five-year period.

He said: “The appropriate exchange rate based on current PPP estimates stands at about N1,256 to the dollar, suggesting the naira is still trading below fair value.”

Global currency strategist Charlie Robertson also noted that the weaker US dollar environment is benefiting emerging and frontier markets, including Nigeria.

“A weak dollar is dislocating many markets, but it is good for Africa, as we are seeing with the naira,” he said.

Reserves hit multi-year highs

CBN data show that external reserves have climbed by $5.82 billion, or 14.45 per cent, to $46.11 billion, compared with $40.29 billion at the beginning of the reforms.

The reserves recently crossed the $46 billion mark for the first time in about eight years, underscoring the scale of recovery.

Within just 22 days, the country added roughly $510 million, rising from $45.5 billion to $46.01 billion. Industry data indicate that reserves were last at similar levels in August 2018.

The build-up strengthens Nigeria’s ability to finance imports, meet external obligations and protect the naira from speculative attacks. It also improves investor confidence and sovereign credit perception.

Analysts attribute the recovery to stronger oil receipts, rising non-oil exports, tighter FX management and increased capital inflows.

In the first 10 months of 2025 alone, Nigeria attracted $20.98 billion — a 70 per cent increase over the total for 2024 and a remarkable 428 per cent jump compared with 2023 levels.

CBN Governor Olayemi Cardoso said reforms in the FX market have significantly narrowed the gap between official and parallel rates to less than two per cent, down from over 60 per cent previously.

He said the naira now trades within a narrow and predictable band, enhancing market transparency and investor confidence.

“Macroeconomic indicators show that Nigeria is more resilient to external shocks today than at any point in recent history,” Cardoso said.

According to him, the current account surplus strengthened by over 85 per cent in 2025, while foreign reserves provide more than 10 months of import cover.

Importantly, he stressed that the reserves are being rebuilt organically rather than through borrowing.

“Our FX buffers are being restored through improved market functioning, stronger non-oil exports and robust capital inflows,” he noted.

Founder of B. Adedipe Associates, Prof. Abiodun Adedipe, identified several structural reforms supporting stability, including the removal of petrol subsidies, exchange-rate unification, bank recapitalisation and tighter fiscal controls.

He said the elimination of forex arbitrage and subsidy leakages has reduced distortions and improved transparency.

Bank recapitalisation, he added, will create stronger lenders capable of financing Nigeria’s long-term ambition of building a $1 trillion economy.

Other measures such as tax reforms, credit expansion programmes, student loans, consumer credit schemes and agricultural financing initiatives are expected to deepen economic growth and domestic productivity.

Oil and gas revenues improve

Operational improvements at the Nigerian National Petroleum Company Limited (NNPC Ltd) are also supporting the positive narrative.

The company reported revenue of N5.08 trillion in October, up from N4.27 trillion in September, while profit after tax rose sharply to N447 billion from N216 billion.

Gas output increased significantly, while crude production averaged about 1.58 million barrels per day.

Though still below Nigeria’s OPEC quota, analysts say sustained improvements could further boost dollar earnings and reserves.

Outlook

With oil prices holding above budget assumptions, foreign inflows strengthening and reserves climbing steadily, analysts believe Nigeria’s macroeconomic position is on firmer footing than in recent years.

However, they caution that sustaining the gains will require policy discipline, especially as the country approaches an election cycle.

Maintaining exchange-rate transparency, limiting fiscal deficits and continuing structural reforms will be critical to preserving investor confidence.

If current trends persist, the combination of higher oil prices, stronger reserves and a more stable currency could mark a turning point for Africa’s largest economy.

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