A Review of the Nigerian Energy Industry

Financial market update

finance06 January 2014, Sweetcrude, Houston – Local and international financial market products and services update.
FX MARKET IN FOCUS: We resumed the New Year with the resumption of USD sales from oil majors as well as the state owned oil company with about 700 million sold into the market last week. These inflows gave the local unit some support having being under pressure from the increased USD demand seeing as the interbank market became the substitute for the demand because of the closed RDAS auctions. The increase in greenback liquidity in the market helped ensure that the pair mostly traded the 158 levels at the end last week hitting a low of 158.05/05 and closing for the week at 158.68/78, more than 180 points appreciation from the previous week’s close. Further oil company sales are expected over the next week and should help keep rates at current levels especially as RDAS auctions resume this week which should help reduce the demand in the interbank market

TBILLS: The market opened last Friday on a bullish note, as all maturities traded took yields lower by another 20-40bps. This however was disrupted by the CBN’s announcement of an OMO auction, offering about N150 Billion worth of bills around the 125day – 139day maturities. The auction was massively oversubscribed putting the amount sold at N 300 Billion. We saw yields adjust back to opening levels post auction announcement. With liquidity in the system of over N700 Billion and about N1.2Trillion bills still maturing this month, we expect to see more auctions and similar price actions.

MONEY MARKET: OBB and ON rates both at 10.25%.

COMMODITIES: WTI crude was little changed in New York after the biggest weekly decline in 19 months before data forecast to show a rebound in service industries in the U.S., the world’s largest oil consumer. WTI for February delivery was at $94.07 a barrel in electronic trading on the New York Mercantile Exchange, up 11 cents, at 2:08 p.m. Singapore time.

NIGERIA: President Goodluck Jonathan’s 2014 budget currently before the National Assembly will spend a record amount to service the national debt amid rising budget deficits and higher borrowing costs. Interest expense on the total public debt(domestic and foreign) will rise to N712 billion in 2014, according to the budget proposals, a 20 percent increase from the N591.7 billion spent on debt service in 2013.

US: The U.S. Federal Reserve, having just reduced its bond-buying program, now appears deep in debate over the best way to unwind its extraordinary stimulus in the months and years ahead. The Fed has held benchmark rates near zero since late 2008 to spur growth and hiring in the wake of the Great Recession.

EUROPE: European Union leaders pondering the fruits of a 120 billion-euro ($163 billion) push to jump-start the economy and create jobs can look to data this week for evidence of how little has been achieved. With the euro-zone economies battered by the debt crisis and slow to shake off a record-long recession, policy makers are struggling to find a recipe for growth.

CHINA: China’s Yuan retreated from a 20-year high after the central bank lowered its reference rate and a services industries index weakened. The People’s
Bank of China cut the Yuan’s reference rate for the third straight day, lowering it by
0.03 percent to 6.1059 per dollar.

Macro Economic Indicators
Inflation rate (yoy) for Nov. 2013            7.9%
Monetary Policy Rate current                   12%
FX Reserves (Bn $) as at Dec. 31              43.610

Money Market Highlights
O/N                                     10.5833
7 Day                                   10.8333
30 Day                                 11.0833
60 Day                                 11.3333
90 Day                                 11.7083
USD 1 Month                       0.16470
USD 2 Months                     0.20995
USD 3 Months                     0.23985
USD 6 Months                     0.34520
USD 12 Months                    0.58460

Benchmark Yields
Tenor                    Maturity               Yield (%)

91 days                     03-Apr-14                11.49
182 days                   05-Jun-14                11.57
364 days                  04-Dec-14                12.35
2 years                      23-Apr-15                12.71
4 years                      31-Aug-17                12.58
5 years                     30-May-18               12.57

Indicative Currency Exchange Rates
Bid          Offer

EURUSD        1.3580       1.3630
GBPUSD         1.6364       1.6414
USDJPY          104.37       104.77
USDCHF         0.9059      0.9089
GBPEUR         1.2050       1.2060
USDZAR       10.6120     10.7620
USDNGN        158.68      158.98
JPYNGN          1.5204     1.5704
CHFNGN         175.16      179.16
EURNGN         215.49    219.49
GBPNGN         259.66    263.66

                                 Hi              Low           Close      Prev.Close
USD/NGN      158.85/95    158.50/60   158.68/78  158.75/85

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