Investors have resumed dumping Nigeria’s long-dated dollar-bond after oil price failed to find a floor following a much-awaited record production cut announced by OPEC and its allies last week.
Nigeria’s 2047 Euro-bond yield has reversed its decline into the single-digit territory rising to 10.49% Thursday, indicating sell-pressure.
The bond had risen to as high as 13.21% following the crash in oil price by more than 50% from mid-February to March.
Investors had renewed their interest in the dollar-debt on the news that OPEC and its allies would cut oil production by at least a tenth of global supply to reduce glut and support price amid the COVID-19 pandemic.
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OPEC+ last Sunday agreed to a record production cut of nearly 10 million barrels per day (mbpd). The 9.7 mbpd cut which exceeds 2008’s record 2.2 mbpd cut will come into effect in May and June.
However, the oil market has been unable to find support as Brent, the benchmark crude slid below $30 shortly after the announcement. As of 17:00 GMT+1 Friday, Brent sold for $28.46 on the futures market.
The anticipated higher price would have helped ease pressure on the naira which is said to be overvalued after CBN’s devaluation to N360/$. This would have reduced currency volatility risk that has caused foreign capital flight whilst improving balance of payment position and reducing potential earnings risk to the oil-dependent economy.
Foreign Reserve of the Central Bank of Nigeria (CBN) stood at $33.908m as of Friday compared to $36.932m mid-February.
Nigeria’s ability to meet its foreign-denominated obligations has also been put on the spotlight by global rating agencies including Fitch which in late March downgraded Nigeria’s long-term foreign-currency issuer default rating (IDR) to ‘B’ from ‘B+’ with a negative outlook citing external and fiscal pressures.
Oil market watchers say the reaction of the market has been affected low demand for oil which has fallen by a third since the pandemic.
With most of the world’s largest economies under lockdown and key oil-consuming sectors like Aviation and Manufacturing affected, investors, do not believe the supply cut would be enough to balance the market, hence a short-term over-supply would remain till lockdown is lifted, they say.
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 non-members would contribute 4 million to 5 million bpd.
Nigeria has agreed to cut production to 1.41mbpd ex-condensates.
