Friday, December 16, 2016 10:08 AM /FDC
Oil prices reached the highest level this year in an inter-day trade of $58pb, following a deal by oil producers, before closing lower at $53.50pb.
While this is good news for Nigeria, the downside risk is the recent U.S Fed interest rate hike of 25 bps. This typically strengthens the dollar, reducing the demand for dollar denominated commodities like oil.
Headline inflation rate for November increased marginally to 18.48%, in line with the FDC think tank forecast. As anticipated, month-on-month inflation slowed further as the base year effect loses steam.
The prices of Christmas sensitive staple foods remain sticky downwards with marginal increases as traders take advantage of the year end festivities.
The attached report summarizes the commodity price movements for this week.
Burning Economic Issues
• President Buhari presents the 2017 budget of recovery and growth
• Expenditure up 20% to N7.29trn; revenue up 30% to N4.94trn
• Debt service to consume 34% of revenue
• Oil amnesty budget for militants up 225% to N65bn
• U.S Fed increased rate by 25 bps
• Naira flat at N485/$ - parallel; N305.5/$ - Interbank
Domestic Commodity Prices
•Inflation to climb marginally to 18.4% (FDC)
•Food basket up slightly
•Consumer resistance increasing as disposable income shrinks
•Diesel prices at N203/liter. Kerosene at N300/liter
Stock Market – Santa Clause Rally ???
• NSE ASI 1.29% (26,407.64pts)
•Bargain hunting ahead of budget spending
Oil Prices Surge
• Brent crude 3.27% to $53.90pb
• WTI 3.66% to $51.04pb
• 27% above Nigerian budget benchmark of $42.5pb
• U.S Fed rate hike puts pressure on oil prices
• OPEC production in November up 0.47% to 33.87mbpd
• U.S crude stockpiles down by 2.6mb – EIA
Oil Markets Today
Outlook – Oil Prices
• U.S Fed rate hike will strengthen the dollar and depress oil prices
• Production cut compliance amongst members remains a key uncertainty
• Investors to keep an eye on mounting U.S crude stockpiles
Outlook – Agric Prices
• Ample global supplies to weigh on prices
• Fed rate hike could dampen demand for U.S grains
• Supply could exceed demand next season - Rabobank
• Favourable rains will improve crop production in West Africa
1. Domestic Commodity Prices Oblivious to a Falling Naira