Yesterday was an eventful day in the Nigerian equity market. As news trickled into the various global financial centres that newly released US data showed a rise in crude inventories, oil prices began to tank. Brent crude eventually closed at $30.46, down 1.3% for the day and 20% for the year. This is also the lowest price for oil in 12 years.

By the end of trading at the Nigerian Stock Exchange, the ASI had depreciated by 3.58% to 25,103.05 points, with only 3 stocks recording gains in the entire market. This was a continuation of the poor performance that has pulled the index down 12.36% for the year. In the whole of 2015, the ASI depreciated 17.36%.

These results are an indication of the undesirable conditions currently affecting the Nigerian economy. Nigeria is struggling to cope with crude oil prices that have fallen below $31 a barrel. Oil accounts for two-thirds of government revenue and about 90 percent of its foreign currency earnings. The slump is weighing on growth, which is estimated to have slowed to 3.2 percent last year, the slowest pace since the country returned to democratic governance in 1999.

First is the issue of how the proposed 2016 budget will be funded. The Buhari administration has hinged its economic blue print on an already deficit driven budget. If oil prices continue to fall, the budget would be dead on arrival.

Second is the issue of the value of the Naira. The CBN has remained adamant that it will not devalue the currency, holding it at about N199/$. However, due to factors of demand and supply, the parallel market is not offering the dollar at greater than N100/$ more than the official rates, the naira crossed the N300 mark to close at N301 in a cross section of the parallel market on Wednesday. This imbalance has started affecting trade as banks have slowed the issuing of letters of credit and manufacturers that are having difficulty accessing foreign exchange for imports.

The exchange rate will more likely appreciate than depreciate in the coming days suggesting that the market is currently in a panic mode. As investors flee the capital market and risky Nigerian assets, they are buying dollars as a safer bet for their hard earned money. This is in turn, putting pressure on the black market which has experienced a volatility unseen for years. Investors hate uncertainty and if the current condition persists, Nigeria may see its share of FDI and FPI drop steeply as investors move their capital to other emerging markets.