A Review of the Nigerian Energy Industry

Financial market products & services update

16 October 2014, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: In spite of falling oil prices, the federal government has proposed an oil benchmark of $78 per barrel for the 2015 budget, 0.50 cents higher than the $77.50 per barrel approved by the National Assembly in the 2014 budget. The federal government’s rather optimistic oil benchmark is bound to raise eyebrows, as market analysts are predicting that the price of crude would fall below $80 a barrel due to slowing global demand and the rise in US shale oil production. The 2015 oil benchmark was reflected in the Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) sent by President Goodluck Jonathan to the National Assembly on Monday and read on the floor of the Senate yesterday.

Financial marketsFX: Oil flow sentiments failed to hold the USDNGN pair yesterday, opening the market at 164.10/20 but we saw a gradual intraday depreciation as the level of demand in the market mitigated the effect of the oil flows. The pair traded a high of 164.56 and closed at 164.45/55. Likely to see the pressure continue today which could incite the resumption of the CBN intervention

CBN RDAS AUCTION: CBN offered $350 million and sold $349.9 million. Marginal rate rose 1 kobo to 155.76 (1% commission excluded). 22 Banks participated.

FIXED INCOME: Bond yields pounded yesterday closing 15bps wider. With offshore accounts being sellers of risk, most of the selling is mainly down to the macro risk sentiment surrounding oil ($84 handle). Little wonder that the bond auction results came out with some new high prints – August 2016s (+65bps) at 12.14%, March 2024s (+56bps) at 12.79% and July 2034s (+40bps) at 12.699%. All in all, confidence has been pretty shaken up badly and we see this on the desire to lighten up on Nigeria. Tbill market had local buyers with no OMO auction yesterday and market up NGN393billion. O/N rates remain edat 10%. There is a Tbill auction coming up next week Wednesday.

USA: The U.S. budget deficit fell by nearly a third to $483 billion in fiscal 2014, the lowest level since 2008, as a quickening economic recovery boosted tax collections and spending grew only modestly, the Treasury Department said. The deficit, down from $680 billion last year, was the lowest since a $459 billion budget gap in fiscal 2008, which was followed by four straight years of $1 trillion-plus deficits in the wake of the financial crisis.

CHINA: China’s banks increased lending in September, supporting Beijing’s efforts to guide capital into the struggling economy, but foreign investment remained weak and foreign exchange reserve data showed signs of potential capital flight. Other data this week was also mixed, with exports and imports beating expectations but consumer inflation slipping to its lowest in nearly 5 years, pointing to broader weakness in the economy and reinforcing expectations that authorities will need to roll out more stimulus measures.

FIXED INCOME: Bond yields pounded yesterday closing 15bps wider. With offshore accounts being sellers of risk, most of the selling is mainly down to the macro risk sentiment surrounding oil ($84 handle). Little wonder that the bond auction results came out with some new high prints – August 2016s (+65bps) at 12.14%, March 2024s (+56bps) at 12.79% and July 2034s (+40bps) at 12.699%. All in all, confidence has been pretty shaken up badly and we see this on the desire to lighten up on Nigeria. Tbill market had local buyers with no OMO auction yesterday and market up NGN393billion. O/N rates remain edat 10%. There is a Tbill auction coming up next week Wednesday.

COMMODITIES: Brent crude fell to the lowest level in four years on concern global supply is outpacing demand. Brent for November settlement declined $1.26, or 1.5 percent, to close at $83.78 a barrel on the London-based ICE Futures Europe exchange, the lowest close since Nov. 23, 2010.

Macro economic Indicators
Inflation rate (YoY) for August. 2014           8.50%
Monetary Policy Rate current                        12.00%
FX Reserves (Bn $) as at October 13 2014  39.536

Money Market Highlights
NIBOR (%)

O/N                               10.7083
30 Day                          12.8146
90 Day                          13.5112
180 Day                        14.3623
LIBOR (%)
USD 1 Month               0.1535
USD 2 Months             0.1954
USD 3 Months             0.2281
USD 6 Months             0.3217
USD 12 Months           0.5444

Benchmark Yields
Tenor          Maturity          Yield (%)

91d                08-Jan-15            11.24
182d              09-Apr-15            11.78
364d              03-Sep-15            11.88
2y                   16-Aug-16            12.74
3y                   31-Aug-17            12.74
5y                   29-Jun-19            12.86

Indicative Currency Exchange Rates
Bid           Offer

USDNGN       164.25        164.95
EURUSD        1.2697        1.2899
GBPUSD        1.5890        1.6092
USDJPY         105.92        105.95
USDCHF        0.93765     0.9478
GBPEUR        1.2393        1.2597
USDZAR        10.9757       11.1791
JPYNGN        154.9197     155.0203
CHFNGN       173.76         175.45
EURNGN       209.95        211.31
GBPNGN        262.28       263.67
ZARNGN          13.88         15.8 0

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