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Breakfast Report - 04 December, 2017

Following the Organization of Petroleum Exporting Countries (OPEC) decision to extend its output cut agreement to the end of 2018, Brent crude price has hovered above $63/bbl. Notably, the cartel beefed up the agreement by including Libya and Nigeria which were exempted from the initial cut – capping Nigeria’s production at 1.8mb/d (excluding condensates). However, a rise in U.S. rig count has pressured oil prices slightly, with West Texas Intermediate crude dipping to $58/bbl. The Minister of State for Petroleum Resources Mr. Ibe Kachikwu stated that despite the inclusion of the country in the agreement, FG’s revenue projection from oil sources for 2018 (₦2.4 trillion) would still be met as the cap does not include condensates estimated at 0.35 mb/d. Whilst we see relatively strong global oil prices supporting Federal Government oil revenues (2018 benchmark: $45/bbl), we are cautious on oil volumes given the gap (even after accounting for condensates) between OPEC cap and budget target (2.3 mb/d).                                                           

Despite a negative open to last week, the ASI recorded a 155bps w/w rise following notable buying interest across all key sectors on the stock exchange. With positive closes across all but one key sector on Thursday and consistently strong positive market breadth to close out the shortened week, we expect this upbeat sentiment to filter into the start of this week.                                                       

Stock Watch: DANGFLOUR has gained 12% over the last four sessions and currently trades at a year-high of ₦10.30, returning 142% ytd.                                                    

Supported by the liquidity inflow at last week’s close, we believe a more positive trading sentiment will surface in the fixed income market at week open. However, we expect continued mop-ups from the CBN to cap buying momentum in the space. We expect the bond market to be supported by anticipated FAAC payments scheduled to hit the system at the start of the week.