A Review of the Nigerian Energy Industry

Financial market update

Financial markets22 October 2013, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: Nigerian President Goodluck Jonathan’s political troubles are increasing pressure on the Central Bank of Nigeria to devalue its currency, risking higher prices on everything from food to oil. While Nigeria is the continent’s biggest producer of crude, it must import 70 percent of its fuel needs because of inadequate refining capacity. That leaves the nation vulnerable to swings in exchange rates, leading the central bank to manage its currency, the naira, in a trading range against the dollar. The peg is becoming more difficult to defend as a schism in the ruling party pushes the naira’s six-month volatility to 6.72 percent, the most since June 2012, reports show.

BONDS: We continued on the bullish trend yesterday, however at a slightly calmer pace. Although the 3Y and 20Y Bond auction came out lower than expected at 13.05% and 13.26% respectively (vs. 13.50% and 13.69% in previous month), we saw the average yields drop by only about 5bps. The bulls still have control of this market, we may however see rates stabilize close to these levels as market reaches equilibrium level.

BILLS: Fairly illiquid market yesterday with no major shifts in the curve. Most of the moves were in the short dates with some demand in 2s, covered by offers in 3s on the back of CBN sale of N63 Billion 87 day OMO bills being sold back into the market. CBN also sold N67 Billion 150day OMO bills. Market is still very liquid, and we see some more OMO auctions as the CBN attempts to mop up liquidity.

MONEY MARKET: OBB and ON rates remained unchanged at 10.25% and 10.50% respectively. Market still very liquid, inching slightly lower to about N700billion.

CBN RDAS AUCTION: CBN offered $300 million and sold $299.5 million. Marginal rate was N155.90/US$ (excluding CBN 1% Commission). 20 banks bid.

US: The dollar edged higher on Tuesday above eight-month low as investors hedged their bets in case U.S. payrolls date later in the day is stronger than expected. The dollar index which tracks the greenback’s performance against a basket of major currencies edged up 0.1 percent to 79.779, holding above Friday’s 8 -1/2 month low of 79.478 but still down more than 1 percent from a peak touched last Wednesday. The dollar has been hit hard as investors bet this month’s 16-day government shutdown would take a toll on the world’s biggest economy, forcing the Fed to maintain its massive stimulus program until next year.

EUROPE: Government bond issuance in the euro area is set to fall next year to the lowest since the sovereign- debt crisis that threatened to splinter the common currency began, according to Morgan Stanley. The decline, led primarily by Germany, vindicates European Central Bank President Mario Draghi, who said this month critics were wrong to predict a demise of the shared currency. Bond sales by Italy and Spain are poised to stabilize, according to analysts. Signs of economic recovery and improvement in the budget outlook will help to contain future borrowing, analysts reported.

CHINA: Home prices in China’s four major cities jumped the most since January 2011, heightening concerns a bubble is forming as the government refrains from introducing more property curbs that would hinder economic growth. New home prices in September rose 20 percent in the southern business hubs of Shenzhen and Guangzhou, 17 percent in Shanghai and 16 percent in Beijing from a year earlier as prices climbed in 69 of the 70 cities the government tracks. Property stocks fell in Shanghai on speculation Premier Li Keqiang will be forced to impose stricter policies to rein in prices and limit risks to the economy. Li has held off tightened restrictions on property this year as his government strives to meet a 7.5 percent annual economic growth target.

COMMODITIES: WTI oil traded below $100 a barrel for a second day after stockpiles rose to a 15-week high in the U/S., the world’s biggest consumer of crude. WTI for November delivery which expires today, dropped as much as 37 cents to $98.85 a barrel in electronic trading on the New York Mercantile Exchange. The more-actively traded December contract slid 26 cents to $99.42.

Indicative Currency Exchange Rates
Bid        Offer

EURUSD       1.3675       1.3725
GBPUSD       1.6125        1.6175
USDJPY         98.27         98.67
USDCHF       0.9027       0.9057
GBPEUR       1.1792        1.1802
USDZAR       9.8320       9.9820
USDNGN      159.32        160.07
JPYNGN       1.6212        1.6712
CHFNGN      176.49       180.49
EURNGN      217.87       221.87
GBPNGN       256.90     260.90
ZARNGN       16.20        18.20

Commodities
WTI oil traded below $100 a barrel for a second day after stockpiles rose to a 15-week high in the U/S., the world’s biggest consumer of crude. WTI for November delivery which expires today, dropped as much as 37 cents to $98.85 a barrel in electronic trading on the New York Mercantile Exchange. The more-actively traded December contract slid 26 cents to $99.42.

Interest rates
NIBOR (%)                     LIBOR (%)

O/N             10.5000         USD 1 month            0.1700
7 Day           10.8333         USD 2 month            0.2100
30 Day        11.1250           USD 3 month           0.2386
60 Day        11.3750           USD 6 month           0.3584
90 Day        11.7500          USD 12 month          0.6131
Y/Y Consumer Inflation September 2013 :     8.0%
FX Reserves: 18 October 2013 (USD bn)       45.077
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    
159.82/92     159.40/45    159.82/92      159.85/95

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