A Review of the Nigerian Energy Industry

Financial market update

Financial markets 107 May 2014, Sweetcrude, Houston, Texas – Local and international financial market products and services update.
NIGERIA: In order to improve electricity supply in the country, the Federal Government has promised to generate 7,000 Mega Watt of electricity before the end of the year, Minister of State for Power, Mohammed Wakil, has disclosed. This comes as the Ministry of Power launched its pilot scheme of community protection against power and installations vandalism in Ogori-Magongo Local Government Area of Kogi State. The Minister explained that the Federal Government was doing everything within its power to make sure that Nigerians enjoy stable electricity all year round, but noted that due to vandalism of power lines and installations across the country, the government is finding it difficult to provide the much needed electricity for its citizens.

FIXED INCOME: Another lukewarm session yesterday in the fixed income markets as players traded cautiously ahead of the auctions. We expect another quiet session today and should see the new issues from the auction lead the way by next week. Next up is the bond auction on the 14th of May, with a combined NGN70bn on offer on the 2016 and 2024 bonds and then MPC meeting coming up on the 19th and 20th may.

COMMODITIES: West Texas Intermediate advanced for a second day after an industry report showed crude stockpiles declined in the U.S., the world’s biggest oil consumer. WTI for June delivery increased as much as 46 cents to $99.96 a barrel in electronic trading on the New York Mercantile Exchange.

FX: It was a volatile day for NGN yesterday – it opened at 158.80/90 and closed 3 big figures higher at 161.58/68, despite hitting the intra-day year to date low of 158.10/20. Market opened to rumours of a significant USD sale by the state owned Oil Company, estimated to be in the $400-$600 million range, forcing an initial USD sell-off to test the 158.00 support level, given the level of expected USD liquidity in the market. News of the USD sales by the oil company being far lower than the expected amount ignited a reversal in sentiments, with players emerging by mid-day; market traded one way afterwards, trading and closing at a two weeks high of 161.58/68. Given yesterday’s price action and spike in volatility, short term resistance is at 162.50-80 and support at 160.70-161.00.

US: The Federal Reserve should expect more “bumps in the road” as financial markets react to increasingly less precise communications from the U.S. Central Bank, a top Fed policymaker said on Tuesday. In a speech, Fed Governor Jeremy Stein recalled last year’s abrupt run-up in market-wide borrowing costs and warned that even the most deliberate communications from the Central Bank cannot prevent such reactions as the time to tighten monetary policy approaches. The Fed has kept its key interest rate near zero since the worst of the financial crisis in 2008, and since then, has tried to telegraph how long it will keep it there. While this so-called forward guidance has helped stimulate parts of the economy, including housing, the Fed has made a series of adjustments to its message that has often confused investors.

EUROPE: The European Central Bank will likely hold off policy action on Thursday, waiting for new forecasts from its staff in June before deciding whether to counter low inflation that ticked up last month. The ECB Governing Council meets in Brussels against the backdrop of a Franco-German spat over ECB policy towards the euro’s exchange rate – one factor the bank’s president, Mario Draghi, has identified as a potential trigger for policy action. Ahead of the meeting, markets pushed the euro above $1.39 and towards its high for this year after surveys showed euro zone firms enjoyed a brisk start to the second quarter.

Macro Economic Indicators
Inflation rate (yoy) for Mar. 2014       7.8%
Monetary Policy Rate current             12%
FX Reserves (Bn $) as at May. 05      37.958

Money Market Highlights

O/N                                 10.5917
30 Day                            12.6201
90 Day                            13.0371
180 Day                          14.0659
USD 1 Month                0.1505
USD 2 Months              0.1893
USD 3 Months              0.2249
USD 6 Months              0.3229
USD 12 Months            0.5436

Benchmark Yields
Tenor           Maturity        Yield
91d                 31-Jul-14           10.27
182d              09-Oct-14          10.82
364d              23-Apr-15         12.43
2y                   16-Aug-16         12.45
4y                   31-Aug-17         12.38
5y                   29-Jun-19         12.51

Indicative Currency Exchange Rates
                            Bid      Offer
EURUSD        1.3869     1.3971
GBPUSD        1.6926     1.7029
USDJPY         101.465   101.495
USDCHF        0.8691    0.8793
GBPEUR         1.1931     1.2033
USDZAR        10.4120   10.6180
USDNGN       161.28     161.98
JPYNGN        1.5707     1.7207
CHFNGN       187.26    192.86
EURNGN       227.56    232.76
GBPNGN       273.06    278.26
ZARNGN        14.32      18.12

                             Hi              Low             Close        Prev.Close
USD/NGN  161.70/80   158.10/20     161.58/68     158.65/75

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