Stocks on the Nigerian Stock Exchange (NSE) gained by the most since early March after OPEC and its allies agreed to an unprecedented oil production cut to prop up oil price.
The benchmark All Share Index gained 1.47 percent, compared to 1.7 percent on March 3, to extend bull-run to three days, the longest seen since the first trading week of the previous month.
Gains in big tier banks including big cap stocks like Nestle by 8.52 percent to N830.2 and Seplat by 1 percent to N495 helped pare year’s loss for the broad market to 20.33 percent. However, Dangote Sugar was the day’s biggest gainer after unit price rose 9.74 percent to N10.7.
UBA gained 9.73 percent to N6.2, , FBNH edged higher by 6.82 percent to N4.7, Zenith Bank by 5.66 percent to N14, while GTB and Access gained 3.01 percent to N18.85 and 2.31 percent to N6.65 respectively.
OPEC+ on Sunday agreed to a record production cut of nearly 10 million barrels per day (mbpd), at least a tenth of global supply, to support oil price that has fallen around 50 percent since mid-february.
The 9.7 mbpd cut which exceeds 2008’s record 2.2 mbpd cut will come into effect in May and June. The collapse in oil price was initially driven by slowing demand for the fuel by economies due to the shutdown of activities caused by the COVID-19.
But a failure of OPEC and allies to agree on a production cut crashed price further and threatened oil producing economies.
Specifically, Russia’s refusal to a proposed further cut on March 6 led to a price war between the OPEC ally and Saudi Arabia which saw oil dip below $30 levels at some point.
According to Reuters, the recently agreed-upon global cuts will include contributions from non-members, steeper voluntary cuts by some OPEC+ members and strategic stocks purchases by the world’s largest consumers.
The news agency citing relevant sources said the real effective cuts by OPEC+ would total 12.5 million bpd because Saudi Arabia, the United Arab Emirates and Kuwait would cut supplies steeper given higher output in April while some nonmembers would contribute 4 million to 5 million bpd.
Nigeria would have to cut production by 23 percent of October Oil production of 1.83 mbpd which is the equivalent of 414,000 bpd.
The initial reaction of the market has been said to be weak due to low oil demand which has fallen by a third since the pandemic.
At higher price levels, the pressure would ease on the naira which is said to be overvalued after CBN’S devaluation to N360/$. This would reduce currency volatility risk that has on one hand caused foreign capital flight, while grim economic forecast on the Nigerian economy could ease encouraging investors to pick stocks already trading at deep discounts to their intrinsic value.
