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Analysts Worry about Nigeria's Oil Underproduction and Government's Attempt at National Air Carrier

Aug 12, 2022   •   by TheAnalyst, Proshare Research   •   Source: Proshare   •   eye-icon 73 views

Being an Analyst Note issued by Proshare Research on August 12th  , 2022


Analysts Concerned about Nigeria's Crude Oil Stagnation

On the back of OPEC's Monthly Oil Market Report (MOMR) for July 2022 released yesterday, Proshare analysts expect Nigeria's oil production volume to remain around 1 million barrels per day (mb/d) in the short run as the country's rig count flattened for months. Nigeria's crude oil output averaged 1.084 mb/d in July 2022 compared with the 1.799 mb/d quotas for the country under OPEC July 2022 required production. The MOMR showed that Nigeria's oil production fell by -6.4% M-0-M from 1.158 mb/d in June to 1.084 mb/d in July 2022, based on direct communication. Still, production increased by 6 kb/d to 1.183 mb/d, based on secondary sources (see chart 1 below).


Chart 1: Nigeria's Crude Oil Production and Quota based on official data


Regulators, operators, and analysts have identified crude oil theft along the oil value chain as the primary cause of the country's low oil output and inability to meet the OPEC monthly oil production quota. Proshare analysts believe an integrated and forward-looking plan with private sector-led management will ease many legacy challenges of the industry and further attract private investment. 


Analysts Unimpressed with Government's Attempt at National Air Carrier

Following a recent announcement by the Minister of Aviation that the country's National carrier would be commencing operations soon with three aircraft, analysts have raised questions about the operational model of the intended airline. According to the Minister, the airline would operate based on a wet lease, implying that the government would be responsible for maintaining the crew and the aircraft. Proshare analysts note that this would impose more financial burden on the government than it can bear.


Analaysts Look at Effect of Global Market Disruptions on India's Domestic Market

Global food prices dropped in July due to good harvests in significant economies. The Indian market was no different. India is a major wheat producer, but she is also a large consumer. After wheat prices spiked during the year because of higher demand relative to supply on tensions between Russia and Ukraine, domestic prices of wheat in India went up. The Indian government took up regulations to curb higher domestic prices, including placing an export ban on wheat export to force prices down in the domestic market (a form of food protectionism). In the past week, they have removed the export ban and brought it back again after wheat prices shot up again in the domestic market.


After claiming that the export ban has achieved the desired effect of cooling prices, analysts have taken a view on the effect of the country's market disruptions and pointed out that the topsy-turvy nature of their decisions could force customers to look for a more stable market where government policies won't create supply disruptions. A move like this would see India lose customers to other stable markets, which could cause an increase in the domestic market and push down prices in their domestic market.


Analysts Expect Huge Selloffs of Honeywell Stocks

Amid Honeywell's Mandatory Takeover Offer (MTO), Flourmills Plc has offered a buying price of N4.2 per share, a +57% increase in the Honeywell share prices as at the close of the previous trade, which closed at N2.67. Analysts believe the premium price would attract investors to take advantage of the takeover. Proshare analysts attribute the recent fall in the share price of Honeywell to selloffs from investors, with a -3% week-on-week fall in the share price at the close of the previous trading session. Analysts expect investors to be attracted to the takeover price in the coming week  (see chart 2 below).


Chart 2: Movement in Honeywell Share Price


Unending Bearish Sentiment in H1 spreads to H2 2022 on Rising Inflation Note Analysts

The bearish sentiment spilled into Thursday's trading session as selloffs at the mid-tenor pulled the average benchmark yields outward. The average benchmark yield grew by +0.57% to settle at 12.84%. Initially, high inflation should drive investors to the long tenor. However, analysts noticed a contrary reaction in the market as average benchmark yields sustained a rising trajectory in H1 because of higher inflation expectations. The trend signals a prolonged bearish sentiment for the year's second half (see table 1 below). 


Table 1: FGN Bonds Market 

Analysts Review Hydrogen as a Source of Sustainable Energy

While fossil fuels are battling for survival,  the immediate effects of the war in Ukraine on energy prices underscore the urgent need to focus on sustainable/renewable energy. Accelerating the energy transformation for the energy sector, which accounts for a large part of global greenhouse gas emissions, has become necessary for long-term energy security, price stability, and national resilience. In this respect, there is a promising alternative: green hydrogen. Proshare analysts believe green hydrogen can provide a more sustainable solution to problems associated with the growing energy demand, particularly global warming.

Green hydrogen is the best alternative because it contains no carbon (emission-free) and can be produced competitively in many places. Analysts believe that whereas the production process for hydrogen may not entirely be problem-free or cheaper, it is still the most viable source of renewable energy.


Analysts Highlight Twitter Location Spotlight Feature Available to Professionals

Twitter's team has been developing a collection of foundational, free-to-use products that give them the tools they need to customize and strengthen their business presence. This week the team reached a milestone by introducing the Location spotlight that allows professionals such as creators, developers, small business owners, and big brands, among others with physical business locations, to display their business address and hours of operation for customers to reach them via phone, text, email, or Twitter direct message. The spotlight also allows professionals to add a map of their business location using the Google Maps platform. Analysts believe this feature would improve the performance of business owners via Twitter, give them global recognition, and provide easy access to several products and services for consumers.


Australian Securities Watchdog Emphasizes Need to Regulate the Crypto Market.

The Australian Securities and Investment Commission called for strong cryptocurrency market regulation after surveying 1053 retail investors in November 2021. The securities watchdog discovered that 41% of respondents got their information from YouTube videos and Facebook, while 13% got data from a financial broker. Since crypto-assets have increasingly become a mainstay and highly advertised, analysts stress the importance of a global framework for regulating cryptocurrencies via exchanges, thresholds, tax impositions, and crypto coins.

As Bitcoin fails to test the US$25,000-price level and correct from US$24,822.63 to US$23,987.28, the crypto market sentiment suffers with a move formed below the 10-day exponential moving average of US$23.528.81. Other altcoins are trading in a mixed bag, with Ethereum rising after a correction to US$1,894.12 and BNB falling by -1.68%. Analysts noted that the next key resistance is near the US$24,500 zone, and a decisive move above the US$24,500 resistance zone could make Bitcoin start another fresh increase and perhaps test the US$25,000 resistance zone (see chart 3 below).

Chart 3: Bitcoin Price Movement


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