Being an Analys Note issued by Proshare Research on August 10^th  , 2022

Midweek saw Bears Stomping Oil Market, but Analysts remain Bullish 

Crude oil prices dipped on Wednesday as news of significant 2.2million barrels rises in U.S crude stocks was reported by the American Petroleum Institute against analysts' forecast of 100,000 barrels built in crude inventories. The price drop is supported by the likelihood that both Whitehouse and Tehran, which are currently on national consultation, will assent to the EU-brokered final draft to revive the 2015 Iranian nuclear deal, a situation that will lead to an integration of about 1-1.5mb/d of Iranian oil export to the mainstream oil market. 

Some analysts have argued that bringing Iranian oil to the market will ease the tightness, and oil prices could fall to $80 per barrel. However, the halting of Russian oil supplies flowing through the Southern route of the Druzhba pipeline to parts of Central Europe by Ukraine placed a floor on the price drop. Proshare analysts remain bullish about oil prices, expecting the tightness of the oil and gas supply will persist. In contrast, demand remains resilient, a situation that will keep oil prices at an average of $105 per barrel for 2022. 

Chart 1: Movement in Benchmark Crude Oil Prices ($' per barrel)

Economists forecast 19.3% inflation for July, Reflecting Naira Decline

Proshare analysts project that headline inflation rose to 19.3% in July, reflecting the substantial depreciation recorded in the Naira at the end of last month. Analysts note that the Naira depreciated by close to 15% at the parallel window the previous month following a significant liquidity challenge that hit the FX market.  Analysts believe that apart from higher import costs, the rise in the cost of fertilizers and other agricultural inputs also likely counteracted the slight reduction in the global food index and crude oil prices. 

Analysts Take a Sweep of the Global Wheat Market

Following good harvests and export in large countries, food prices generally dropped in July. The United States, a major wheat exporter, recorded a significant harvest and began exporting the grain. While this pushed down the price of the grain in the global market for some time, the price of bread and pasta has started climbing across countries as different circumstances have put pressure on supply.

As Europe battles with a heatwave that has affected the harvest of some food items, the United States has also had to contend with a heatwave that has dried up some of their crops. According to the U.S. drought monitor, as of August 2, about 43.16% of the United States is in drought, which has affected projections on the food crop total harvest and export. Reduced production from the world's largest exporter, Russia, on the back of a late start due to cold spring, rain, and lack of spare parts for farm implement repair also give a bearish outlook for wheat exports as Russia has reduced its wheat export estimate. Wheat prices rose in the last trading session, having a YTD of +0.2% (see chart 2 below).

Chart 2: Wheat Price Movement

Investors to take Advantage of Possible Seplat- MobilExxon Acquisition Predict Analysts

Proshare analysts attributed the +231% increase in volume traded at 294,102 against 88,740 sold in the previous trading session of Seplat Energy shares. Considering the extensive benefits of the transaction to the Nigerian Energy sector and the larger economy, President Muhammadu Buhari gave his Ministerial Consent to the deal on Monday. The company's share price at N1430.5 has remained flat since its last change as of July 15 at 1300.5 (see chart 3 below).

Chart 3: Seplat's Share Price and Volume Movement 

Market Quietens in Anticipation of the NTB Primary Auction Note Analysts

In anticipation of the NTB primary auction today, the bond market was quiet the previous day, with insignificant activity across the tenors as investors sought higher returns from commercial paper issuances (CPs). The overall benchmark yield stayed at 12.69; analysts expect the primary auction to spur selloffs in the market today, increasing the average benchmark yield (see table 1 below). 

Table 1: FGN Bonds Market 

Analysts Review Risks of Narrow Thinking in the Energy Transition Plan 

Signatories to the Paris agreement and the 2021 Glasgow climate pact set clear goals and time frames for the world to achieve net-zero emissions, thus, increasing the pressure on the global transition to renewable energies. However, while change is imminent, some set paths to the target tend to compromise the stability and undermine the sustainability of mineral-rich but less developed economies while benefitting developed economies. 

Analysts attributed this situation to the fact that the infrastructure for renewable energies is heavily dependent on non-renewable resources like copper, nickel, etc., leading to increased mining activities and deforestation in mineral-rich nations at the expense of the green transition. It also reduces the availability of clean water in those countries for agricultural activities and food availability while stifling the sources of income for farmers. Analysts have expressed their worries that not only does this severely mitigate the effects of decarbonization, but it also portends no clear path to the transition to sustainable energy. 

Chips and Science Act Passed into Law, Analysts Weight the Good and Ugly

U.S. President Joe Biden has signed a law committing $280bn (£232bn) to the tech manufacturing and scientific research industry. The investment plan includes tax breaks for companies that build computer chip manufacturing plants in the U.S. Analyst believes the investment plan is timely, coming at a time of global shortage in semiconductors. Market expectation is that the investment commitment will increase the production of semiconductors and high-end research and development in the technology industry.

Bitcoin Price Movement, Market Ambivalence Prevails as Analysts' Ponder Recovery

The cryptocurrency market remained gloomy, with significant currencies trading below their support levels. Bitcoin fell by -3.80% in the past 24 hours, approaching the US$22,500 support level, and reached a 24-hour low of US$22,771.52. Similarly, Ethereum plummeted below the US$1,700 price mark, falling by -5.62% from US$1,781.17 to US$1,665.09, while XRP declined by -3.86%. Analysts noticed negative momentum in significant indicators, with sellers placing sell positions on the moving average of US$23,237.99 and bulls establishing buy bets on the moving average of US$22,996.04 (see chart 4 below).

Chart 4: Bitcoin Price Movement