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The Market Today - 15 February 2018

Constrained by output cut, oil producers want to pump more                                                   

Looking at the rally in oil prices from June 2017, the significance of the Organization of Petroleum Exporting Countries (OPEC) and allied nations output agreement cannot be underestimated. Compliance remains key to the success of the deal, and so far, participating nations have generally complied (almost 100% compliance in January 2018). However, in light of strong prices at the start of 2018 and recent investments in the expanding productive capacity, a number of countries are eager to ramp up production, once given leeway. Taking a cue from the inclinations of the likes of Russia and Iraq, even Nigerian drillers are itching to expand the country’s production to take advantage of the calm in the Niger Delta region. Nigeria’s oil production excl. condensates reached 1.8 mb/d in January, in line with the OPEC quota, and the country would need to focus on condensates production to hit the 2.3 mb/d production target for the 2018 Budget. Whilst oil production volumes remain key to Nigeria’s fiscal affairs, compliance with the OPEC deal is a necessary element in supporting global crude oil prices.                                                               

Nigerian bourse on road to recovery?                                                   

The Nigerian bourse closed in the green yesterday, snapping a streak of seven straight negative closes with a 111bps gain. Market sentiment turned yesterday, evidenced by recovering market turnover and positive market breadth. We anticipate the recovering filtering into today’s session.

Stock Watch: HMARKINS has shed 40% over the last nine sessions. The insurance stock currently trades at ₦0.30 – the lowest priced on the NSE – and has returned -40% ytd.                                                 

Yields in FI market moderate at PMA                                                    

The Central Bank of Nigeria conducted a Primary Market Auction yesterday, offered and sold ₦176.00 billion across the 91DTM, 182 DTM and 364DTM bills at 11.95% (previous:12.00%), 13.65% and 13.70% respectively (effective yield: 12.32%, 14.65% and 15.87%).  Trading was relatively positive in the T-bills space yesterday as yields declined 4bps on average. Activity was more muted in the bond market as most benchmark bonds closed flat on the day. With yields at the primary market settling lower than secondary market levels, buying in the fixed income market should strengthen today, also supported by a ₦245 billion maturity. However, likely CBN liquidity mop up may dampen activities.