Investment researchers at Bancorp Securities Limited, one of the investment research and stock brokerage entities in Nigeria, have predicted a sluggish momentum on the Nigerian Exchange (NGX) this week amid fiscal and macroeconomic whirlwinds in the broad economy.
The experts, in the firm’s ‘Weekly Stock Recommendation for Sept 09 to Sept 13’ report, which focused on Equities Market Overview predicted that the bearish trend in the domestic market was expected to persist, with uncertainties surrounding the upcoming MPC meeting and potential policy changes.
The analysts projected: “We anticipate a continuation of the subdued momentum on the domestic bourse, though with waning intensity, particularly in the seemingly overvalued Oil and Gas sector. This outlook is clouded by uncertainties surrounding the forthcoming Monetary Policy Committee (MPC) meeting, as market participants remain watchful of potential shifts in policy rates and accompanying regulatory measures.”
They noted that Nigeria’s oil and gas sector had been undergoing significant changes with the implementation of the Petroleum Industry Act (PIA) in 2021, leading to the restructuring of the Nigerian National Petroleum Corporation (NNPC) into a public company and the deregulation of the downstream sector. Additionally, two out of five planned large-scale refineries are expected to begin operations soon.
According to the researchers, some of the anticipated outcomes of the oil and gas industry in terms of economic growth are that they are aimed to create a more resilient oil and gas sector, supporting Nigeria’s overall economic development, and that it was anticipated that refined petroleum product prices may decrease, benefiting consumers and enhancing economic welfare.
However, they noted that experts were skeptical that the establishment of new refineries alone will lead to lower petroleum product prices due to structural challenges like oil theft, deteriorating infrastructure, inadequate logistics, and a lack of supporting industries.
This is even as global experiences also show that the mere existence of refineries does not guarantee low prices, especially in resource-rich countries facing policy challenges.
On the Macroeconomic and Sectoral Impact, the researchers maintained that refined petroleum products remained crucial for Nigeria’s economy, powering transportation, electricity generation, and industrial activities. Fluctuations in petroleum product prices significantly impact inflation, business operations, and economic stability.
The analysts stated: “This week, the commencement of Premium Motor Spirit (PMS) production at Dangote’s 650,000bpd refinery is a milestone for Nigeria, potentially easing PMS scarcity and reducing dependency on imports. However, challenges such as inadequate crude supply and rising prices (NGN855 – NGN897 per liter) due to subsidy removal continue to pose risks.”
They further noted that the improved local refining capacity could reduce import dependency and foreign exchange pressure, generate employment opportunities and foster industrial growth, as well as boost West African countries’ refined petroleum products supply from Nigeria.
However, they cautioned that without addressing structural issues, local refineries may not reduce prices, leading to continued inflationary pressures, weaken energy infrastructure, such as power and transportation, hampers effective distribution and undermines potential economic gains, just as ongoing challenges in governance and policy implementation could slow down the intended benefits of the reforms.
The experts clarified: “Summarily, while the oil and gas reforms in Nigeria have the potential to drive growth and stabilize the energy sector, significant structural, logistical, and governance challenges must be addressed for these benefits to be fully realized across Nigeria and West Africa.”
