Nigeria Strategy Report H2 2018 Excerpts- Crude Oil: Stability gains ground in titans' Tug of War
- At the start of the year, we had forecasted that the rebalancing process of the crude oil market would leave prices stable over 2018, wherein we had a base case forecast of $60/bbl. for 2018. However, we noted the upside risk to our forecast stemming from stronger demand and supply disruptions which could materially tighten markets and thus drive crude oil prices to $65 - $70/bbl. – our bull case scenario. In sync with our bull case thesis, crude oil prices soared with average Brent crude gaining ~25% over the period to $71.16/bbl. due to supply shortfall and a pick-up in demand. In terms of drivers, rising optimism around global economic growth, continued OPEC compliance to output targets and rising geopolitical tensions all contributed to pushing Brent oil prices higher over the period.
- Over the rest of the year, we project a steady rebalancing in the oil market, with an expected deficit of 100kbpd, largely reflecting resilience in oil demand, falling crude oil inventory, and expected shortfall in OPEC production, largely from Iran and Venezuela. Also, growing geopolitical risks are likely to prop up the market rebalancing process. Based on the foregoing dynamics, we envisage the rebalancing process of the crude market would leave H2 2018 prices stable. Given the interpolation between changes in net supply and Brent crude, we update our crude oil forecast to $70/bbl.-$75/bbl. with a base case of $72.5/bbl. for H2 18.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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