Decline of OPEC; Nigeria battles storm with currency devaluation, Bajaj Auto shares face heat too
As lobby of oil producing nations, Organization of the Petroleum Exporting Countries (OPEC), decided not to cut production of oil on November 27 to counter sharply plunging prices, global crude oil rates observed a dip immediately after the verdict.
The Brent crude rate floated around $72 per barrel on Friday (lowest since 2010), falling by $5 on the day of decision.
A few members in the league did express surprise and anguish as supply cuts could have helped to push up prices – by cutting supply to bump up demand. A clear internal divide among the group members was visible post meeting, as per various media reports.
However, a sizable number of global economists advocate that the decision was taken in right spirit as even with lower supply nothing much could have been accomplished considering weak global demand. High prices would have only hit the interests of OPEC further. Whatever may be the rationale behind the verdict, “Saudi America” – coin termed to describe surge of the US as major oil (mainly shale backed) producing nation replacing OPEC in the process, at least for time being – is surely posing some serious threats to the relevance of the crude oil cartel presently.
Facing heat in wake of falling crude prices, Nigerian Central Bank, on November 25, came up with a decision to devalue its currency (Naira) by a tad over 8 per cent. Naira is now pegged at 168 to the US dollar, down from the present exchange rate of 155. The central bank decided to allow Naira to fluctuate plus/minus 5 per cent around the given value. Nigerian currency has come down 9.5 per cent in comparison to dollar in the last 3 months since August 28.
Unfortunately, Nigeria’s predicament doesn’t remain stashed only in falling crude prices. It is also battling high inflation level. In order to counter rising prices, Nigerian central bank has raised interest rates from 12 per cent to 13 per cent.
A little more than 70 per cent of the Nigerian government’s revenue comes from the oil resources that it contains. Brent Crude has fallen a little more than 30 per cent since August 28 till now.
Bajaj Auto faces heat
As soon as announcement of currency devaluation by the central bank was made, Bajaj Auto shares felt the impact and dropped by 8 per cent.
Nigeria that is the largest export market for Bajaj Auto, giving the company 35 per cent export revenues is now posing fresh problems to it with this devaluation.
In order to counter the currency fall, company has decided to increase the retail prices of its two-wheelers and three-wheelers by 4-5 per cent in Nigeria, managing director Rajiv Bajaj was quoted saying by news agency PTI.