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The Market Today - 12 September 2017

Oil enjoys rally as U.S., Libyan production drop                                   

Having slumped to a 2017-low of $44.82/bbl at the end of June, Brent crude price rose to a 3-month high of $54.59/bbl at the end of last week, following production disruptions in the United States (U.S.) and Libya. Severe tropical storms in the U.S. slashed crude production by 8% in one week at the end of August, whilst Libya’s biggest oil field was shut down amidst security threats in the month, cutting daily oil production from 1 mbpd to c.0.6 mbpd. Meanwhile, we note that OPEC deal compliance has weakened slightly in recent months, even as Nigeria and Libya (exempt from the deal) had initially increased production – OPEC July daily production: 32.9 mbpd vs. 2017-low of 31.8 mbpd in March. Amidst this, and a persistent global supply overhang of crude oil, the Saudi Arabia Oil Minister has reiterated that the current agreement could be extended beyond March 2018, depending on market dynamics at the start of next year. In the near-term, we expect some downward pressure on global oil prices, coming from weaker U.S. crude demand as a result of refinery shut-ins and lower gasoline use amidst the tropical storms. Brent crude closed at $53.84/bbl yesterday, significantly above Nigeria’s 2017 Budget benchmark of $44.50/bbl, and we expect this to continue to support oil revenues.                                   

Bears prevail at week open                              

The Nigerian stock market started the week on a negative note with the NSE ASI losing 81bps. Trading was largely mixed through the day, before being dragged down by a decline in heavyweight DANGCEM. Even without the decline in DANGCEM, trading was tepid yesterday as seen in the intraday trading pattern, coupled with the negative market breadth and red closes across key sectors. We expect mixed sentiment to persist in today’s session and foresee further sideways trading.                                     

Stock Watch:  SKYEBANK has lost 11% in the last four sessions. We note that the bank is yet to release Q1’16 results, despite announcement in July that it would release shortly. The stock currently trades at ₦0.57, up 14% ytd.                                    

T-bills market trades mixed at week open                                

The CBN conducted an OMO auction yesterday, offering ₦40.0 billion and selling ₦7.1 billion across the 87DTM and 192DTM bills at stop rates of 16.00% and 17.95% (Effective Yield: 16.63% and 19.82%). Amidst the auction, sentiment in the T-bills market turned mixed at week open with notable movements in yields only on select traded maturities. With the CBN continuing with OMO auctions amidst already tight liquidity, we foresee weakened investor demand in the T-bills market in today’s session. In the bond market, we expect the lull to persist even as sentiment interest in the space remains tepid.