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The Market Today - 21 June 2017

Are oil prices in a bear market?

Brent crude price, the global oil price benchmark, has dipped 20% from January highs as it extended its bearish streak to settle at $45.90 per barrel yesterday. The retreat in oil prices is being driven by a number of factors. Firstly, production has slowly recovered in exempted OPEC countries with Nigeria’s production rising nearly 150,000 barrels a day while Libya is pumping oil at levels not seen since 2013, hitting 900,000 barrels a day this month – according to the national oil corporation. In addition, U.S. shale production continues to rise – oil rig count rose above its 2-year high recently, and production could surge further as producers tap into dormant but accessible wells. On the demand side, weaker than expected gasoline consumption in the U.S. despite the onset of the summer season is also causing a pile-up of inventories. The OPEC output cut agreement, which was extended to March 2018 to support global oil prices, has had a limited impact in recent weeks as the extended deal failed to include deeper cuts, additional allies or an exit plan for when the limits expire. Given the steady supply levels and receding demand, the outlook for oil prices is more bearish. Nevertheless, we highlight that U.S. shale producers may struggle if oil prices dip much further as the production ramp-up began when prices hovered above $55 per barrel. Thus we expect a see-saw pattern in oil prices over the coming months as supply and prices continue to interact.

ASI lifted by late DANGCEM rally

With profit taking activities revving up in yesterday’s session, the market lingered mostly in negative territory till a late rally by DANGCEM pulled the ASI up 71bps. Notwithstanding the green close on the exchange yesterday, we note that trading was mostly negative – indicated by the intraday chart and negative market breadth as profit taking revved up from previous sessions. We therefore expect another day of negative trading and foresee a negative close – barring any further rallies in market behemoth, DANGCEM.

Stock Watch: Yesterday, media sources reported a production contract signed between DANGCEM and Sinoma International Engineering Co. Ltd. for production of cement worth $249.4 million. The cement giant which currently trades at a two-year high of ₦213.97, rose 189bps yesterday and has returned 23% ytd.

Bonds on “sell” ahead of auction

Ahead of the bond auction today, the bond market traded bearish with yields rising across the curve. Meanwhile, buying sentiment returned to bills market as the anticipation of liquidity boost from OMO maturity due on Thursday saw yields moderate 10bps on average. Amidst the Primary Market Auction in both the T-bills and bond market today, we expect cautious trading on fixed income securities in today’s trading session.