Since Russia launched a special military operation into Ukraine, representing a full invasion of its neighbor, the impact of the ongoing war has been felt across all asset classes. Major stock market indexes like the DOW Jones, S&P 500, and the NASDAQ in the United States have all reacted bullishly to the news while European indexes like the FTSE 100 and the DAX all reacted bullishly, however, we are seeing a decline in their basis points, especially in the last 48 hours as the war wages on.
The cryptocurrency market, which initially reacted negatively to the news as Bitcoin fell below $35,000, has now turned bullish as the market has gained nearly $10,000 to currently stand above the $44,000 trading range. The commodity market as well as on left behind as major commodities like wheat, oil and gold have been bullish during these times. Russia is known to be a major exporter of oil, natural gas, and commodities like grains and wheat.
Due to economic sanctions and many countries refusing to trade with the Russian government, there has been increased fear that commodity export from Russia will be distorted. This is because the world’s biggest container ship operators, A.P. Moeller-Maersk and Mediterranean Shipping have temporarily suspended services to Russian ports.
- Due to Russia being one of the largest exporters of oil, as its oil exports account for 8% of the global supply, with its major clients being European nations, the price of oil has rallied to multi-year highs as buyers are avoiding Russian supply in solidarity with Ukraine. A New York Harbor trader told Reuters, “People are not touching Russian barrels. You may see some on the water right now, but they were bought prior to the invasion. There won’t be much after that.”
- As you may very well know, the Nigerian economy is nearly perfectly correlated to the price of crude oil. Thus, if there is any section of the Nigerian economy that will react to a rising oil price, then that section is the Nigerian Stock Market.
- If the Nigerian Stock Market is expected to gain from the rise in crude oil prices, then surely, there are stocks listed in the exchange that could also gain. Let’s look at a few possible beneficiaries of a rising oil price.
Seplat Energy PLC (SEPLAT)
Seplat operates in the upstream sector and makes money producing and selling crude oil. As soon as Russian President Vladimir Putin announced the special military operation into Ukraine on the 24th of February, we have seen the share price of SEPLAT rally.
- Since the 24th, its share price has gained 18.23% from N800 to currently trading at a 52-week high of N945.80.
- However, the Russian-Ukraine war is not the only factor contributing to the rally in its share price. The company announced an agreement to acquire Mobil Producing Nigeria Unlimited (MPNU) from Exxon Mobil Corporation, the world’s biggest oil and gas corporation and a member of the world’s Fortune 10 companies.
- The acquisition potentially positions Seplat to become the second-largest oil company by million barrels of crude oil equivalent (MMboe) in Nigeria. Year-to-Date, Seplat’s share price has gained 45.51%.
Oando PLC (OANDO)
Oando also operates in the oil and gas sector as the company plays in both the upstream and downstream sectors of the oil market as it is involved in exploration, production, and energy services.
- The company also offers gas, power, marketing, supply, trading, and refining oil and gas products for sale. Although we expect this stock to rally amid rising oil prices, we have, however, seen a decline in its share in February.
- On the 3rd trading day of the month, it hit a high of 5.17 but since then, retraced to trade as low as 4.75.
- However, we are seeing an uptick in its trading activity as it gained 1.46% in yesterday’s trading session. YtD, the stock price has gained 9.73%.
Julius Berger Nigeria PLC (JBERGER)
Although Julius Berger does not operate in the oil and gas sector, it does, however, have a positive correlation with the price of oil.
- This is because the company relies heavily on government contracts to drive up revenues. Higher oil prices mean more money for Federal and State Governments that can now spend on roads and other construction projects.
- So far, its share price is had gained 18.57% YtD.
FUGAZ
All eyes are on Tier 1 banks like First Bank, UBA, GTB, Access Bank, and Zenith Bank. Banks, especially the tier one banks, have a stake in what happens in the oil sector.
- A huge part of bank loans is oil and gas-related ones.
- The Central Bank forced banks to take provisions as oil prices crashed. Now that prices are back up, the value of these loans will be improved due to the effect of higher oil prices.
- Obligors of these banks rely on oil prices to drive up revenue and even raise capital for more investments.
- This places banks squarely on the line of performing loans increasing their returns.
Downstream Players
Although fuel is still a largely subsidized product in Nigeria and margins are nothing to write home about, lubricants, diesel, and cooking gas are deregulated products.
- Being by-products of crude oil, we don’t doubt the positive effect this could have on the earnings of downstream players like Ardova, Total, Eterna, MRS, and Conoil.
- We will be watching these products closely to see if prices increase any time soon. If they do, then expect that to flow to the bottom line and possible share price appreciation.
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