A Review of the Nigerian Energy Industry

Financial market update

finance20 September 2013, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: President Goodluck Jonathan proposed cutting the budget by 10 percent next year, postponing investment in infrastructure projects, as the state loses income from a drop in oil production Expenditure may be 4.5 trillion naira ($27.9 billion) in 2014, Jonathan said in his medium-term spending plan released yesterday in the capital, Abuja. Gross oil and gas revenue may decline 12 percent to 6.8 trillion naira as output reduces to 2.39 million barrels of oil a day from this year’s forecast of 2.53 million barrels. The government will trim capital spending while keeping the budget deficit little changed from last year, Jonathan said in the document. “The brunt of the shortfall in revenue is borne by capital expenditure,” he said. Capital spending will decline to 1.2 trillion naira, accounting for 26.2 percent of the total budget, compared with 35.8 percent this year, while recurrent expenditure will account for 73.8 percent, rising from 64.2 percent. The fiscal deficit is projected to rise to about 1.9 percent of economic output in the 2014 budget, from the 1.85 percent projected this year, according to the document.

BONDS: In reaction to the FOMC’s surprise decision not to begin tapering, the local market rallied yesterday. Market liquidity was thin and volumes very low as expected considering the one directional flow of trading. Yields traded down about 25bps on average. The only factor leading to some resistance is a possible decision by Nigeria’s MPC on Tuesday which might push rates higher as they try to deal with the recent spikes in USD/NGN.

BILLS: Rates also came off an average 35bps today in reaction to the FOMC decision. Rates traded lower but some profit takers pushed rates back up to a final close of an average 35bps on the day. Also a very illiquid session in the bill markets.

MONEY MARKET: OBB and unsecured O/N rates coming lower yesterday to close at 13.00%, market opened down N48billion yesterday, liquidity improving through maturing OMO bills in the size of N78billion. Being a non funding day for either WDAS or intervention funds the window was accessible and this helped keep rates low.

US: U.S. home resales surged in August to a 6-1/2-year high and factories grew busier in the Mid-Atlantic region this month, signs that rising borrowing costs are weighing only modestly on the economy. The data released yesterday could make the Federal Reserve more willing to reduce a bond-buying stimulus program. The Fed had flagged concerns over a sharp increase in interest rates when it shocked investors on Wednesday by keeping program at full throttle.

EUROPE: Italy has up to 5.5 billion Euros in a sinking fund that the Treasury plans to use by the end of the year to repay debt at maturity or for buyback, the head of debt at the Treasury said on Thursday. Reports show that the share of Italian debt held by foreigners had basically stabilized as non-domestic investors had returned to buy Italian government bonds in a fairly regular way. Foreign investors hold about a third of Italy’s 2 trillion euro debt after sharply reducing their share during the euro zone sovereign debt crisis. They used to own 50 percent of Italy’s debt.

INDIA: India’s central bank Governor Raghuram Rajan surprised analysts by raising the benchmark interest rate in his first policy review, seeking to rein in inflation that’s hurt the poor and dimmed economic prospects. Rajan, who took office two weeks ago, boosted the repurchase rate by a quarter point to 7.5 percent, the first increase since 2011, a Reserve Bank of India statement showed in Mumbai today. All 36 analysts in a Bloomberg News survey predicted no change. While the RBI also relaxed liquidity curbs in the banking system, stocks, bonds and the currency slid. Today’s decision suggests Rajan is determined to build the bank’s inflation-fighting credentials, with the bump in borrowing costs coming amid the weakest economic growth since 2009. Rajan acted even after the Federal Reserve’s decision two days ago to maintain U.S. monetary stimulus eased pressure on the rupee, which has tumbled since May.

COMMODITIES: WTI headed for a second weekly loss as Libya’s oil output increased and the threat of military strikes against Syria receded, damping concern that Middle East supplies may be disrupted. WTI for October delivery, which expires today, fell as much as 38 cents to $106.01 a barrel in electronic trading on the New York Mercantile Exchange and was at $106.13.

Indicative Currency Exchange Rates
Bid        Offer

EURUSD       1.3534      1.3584
GBPUSD       1.6050      1.6100
USDJPY         99.26        99.66
USDCHF       0.9105      0.9135
GBPEUR       1.1859       1.1869
USDZAR       9.9693    10.1193
USDNGN      160.75      161.50
JPYNGN       1.6195      1.6695
CHFNGN      176.55      180.55
EURNGN      217.56      221.56
GBPNGN      258.00     262.00
ZARNGN        16.12        18.12

Commodities
WTI headed for a second weekly loss as Libya’s oil output increased and the threat of military strikes against Syria receded, damping concern that Middle East supplies may be disrupted. WTI for October delivery, which expires today, fell as much as 38 cents to $106.01 a barrel in electronic trading
on the New York Mercantile Exchange and was at $106.13.

Interest rates
NIBOR (%)                     LIBOR (%)

O/N               13.2500        USD 1 month        0.1793
7 Day             13.8750        USD 2 month        0.2180
30 Day          14.1667         USD 3 month        0.2502
60 Day          14.5000        USD 6 month       0.3744
90 Day          14.8333        USD 12 month      0.6386
Y/Y Consumer Inflation August 2013 :        8.2%
FX Reserves 13 September 2013 (USD bn) 46.341
MPR                                                                     12.00%
Source: Reuters, Bloomberg, Central Bank of Nigeria, Financial Market Dealers Association Standard Chartered Bank Nigeria.

Fx
Hi               Low           Close        Prev.Close
USD/NGN
      162.08/18   160.75/85    161.25/35     162.00/10

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