A Review of the Nigerian Energy Industry

Financial market products & services update

Financial markets
Financial markets

27 August 2015, Sweetcrude, Houston – Local and international financial market products and services update.
NIGERIA: The Nigerian National Petroleum Corp. said it terminated agreements for offshore refining of crude with some companies after a review found them unfavourable. Under the contracts a total of 210,000 barrels of oil per day were allocated to three companies, Duke Oil Co., Aiteo Energy Resources Ltd. and Sahara Energy Resources for refining, according to an e-mailed statement by Ohi Alegbe, spokesman for the state oil company known as NNPC. “After detailed appraisal of the operation and its terms of agreement, the NNPC is convinced that the current offshore processing agreement is skewed in favour of the companies,” the state oil company said in the statement.“The value of product delivered is significantly lower than the equivalent crude oil allocated.” Nigeria, Africa’s biggest oil producer, relies on fuel imports to meet more than 70 percent of its domestic requirements. Four ill-maintained state refineries, with capacity for 445,000 barrels of crude per day, are unable to meet demand. Part of the oil meant for local refining was allocated for offshore processing with the refineries running below capacity.

FX: No significant change in the market as the two way quote FX market remains shut. Special auction funds still maintained at 196.00/197.00.

FIXED INCOME: Bond market was a little quiet as expected. Most of the activity seen was street possibly trying to create shorts on the July 2034s and this selling filtered to the rest of the curve. Liquidity in money market remains extremely poor with pointers indicating that market is short cash. O/N rates were quoted at 100% and trades actually went through at that level. Announcement by the CBN for Thursday’s FX auction sending ideas that a huge amount might be sold and this has put more pressure on bills. The moves seen in bills were brutal (+64bps) as banks tried to raise liquidity. Average yield on bills now 16.50% which is the highest seen this year.

COMMODITIES: U.S. crude oil imports declined to 7.2 million barrels a day in the week ended Aug. 21 as the flows from Saudi Arabia fell 577,000 barrels, the biggest decline relative to other countries. Crude differentials had widened, which encouraged U.S. refiners to source more Bakken and Canadian crude, displacing some imports. Yet the WTI-Brent spread has since narrowed, challenging domestic blends. Crude oil imports are averaging about 7.5 million in the past four weeks, above the 7.1 million the EIA had forecast.

EU: The European Central Bank is ready to expand or extend its quantitative-easing program if needed as a slump in commodity prices and risks to global economic growth threaten its inflation goal, said Executive Board member Peter Praet. “Developments in the world economy and in commodity markets have increased the downside risk of achieving the sustainable inflation path toward 2 percent,” Praet told reporters on Wednesday in Mannheim, Germany. “There should be no ambiguity on the willingness and ability of the Governing Council to act if needed.”

CHINA: As China struggles to help calm a global rout its surprise currency devaluation triggered, its central bank may be making matters worse.
Cutting lending rates, as the bank did Tuesday, causes more funds to flow to state-owned enterprises already experiencing overcapacity in industries such as steel. That deepens deflationary pressure and could potentially push real interest rates higher, not lower, according to the Conference Board. China’s stocks fell Wednesday, as the rates move and an accompanying reduction to the amount of cash banks must lock away failed to stem a $5 trillion selloff. Global investors are looking to People’s Bank of China Governor Zhou Xiaochuan to help repair investor confidence jolted by an Aug. 11 devaluation that heightened concerns over China’s decelerating growth.

Macro Economic Indicators
Inflation rate (YoY) for Nov., 2014                   9.20%
Monetary Policy Rate current                          13.00%
FX Reserve (Bn $) as at January 09 2015     31.474

Money Market Highlights
O/N                                  84.3330
30 Days                           18.8604
90 Days                           20.3274
180 Days                         22.0077

USD 1 Month                 0.1977
USD 2 Months               0.2621
USD 3 Months               0.3270
USD 6 Months               0.5228
USD 12 Months             0.8273

Benchmark Yields
Tenor     Maturity     Yield (%)
91d           26-Nov-15        16.86
182d         25-Feb-16        16.77
364d        04-Aug-16        15.76
2yr            27-Apr-17         15.69
3yr            29-Jun-19        15.78
5yr            13-Feb-20        15.69

Indicative Currency Exchange Rates
                         Bid         Offer
USDNG         197.00      199.50
EURUSD       1.1377       1.1579
GBPUSD       1.5582       1.5784
USDJPY        119.51        119.54
USDCHF       0.93695    0.9471
GBPEUR       1.3562        1.3766
USDZAR      13.0297      13.2331
JPYNGN      161.8497    161.9503
CHFNGN       204.99      206.68
EURNGN       217.24       219.60
GBPNGN        309.40     310.79
ZARNGN          14.69      16.61

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