February 14, 2019/InvestmentOne report

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·         Going into the year, we believe oil prices would be dictated by the actual extent of the OPEC cuts. 

·         On a larger scale, while the China-US trade war seems to be deescalating, with both countries agreeing to a 90-day truce without any additional tariffs, we believe there remains significant risks to global growth. As such, this may see global oil demand slow significantly; particularly demand from China – the world’s largest oil importer of the product, further weighing negatively on the commodity’s price. 

·         According to the budget, oil revenues are set to take up a more prominent role in financing the fiscal plan compared to previous years. While non-oil revenue was cut significantly, oil receipts were tagged to make up for much of the shortfall as the oil price assumption for 2019 was lifted to US$60 per barrel (from US$51 per barrel in 2018).   

·         In the event of a significant rise in crude prices, on the back of OPEC cuts, ease in trade war tensions and supply risks from   Venezuela and Iran, amongst other countries, the Senate may decide against tinkering with the price as production levels are unlikely to meet the 2.3 mbpd target. 

·         In the outgone year, the NNPC showed its unwavering commitment to sustaining the availability of PMS, despite the pressures arising from the high oil price environment combined with the unviability of the current pricing template. With the landing cost rising as high as N205, NNPC imported higher levels of PMS in 2018, thereby ensuring a ceaseless supply of the product at a higher cost. 

·         We are of the opinion that a deregulation of the downstream sector may be delayed to coincide with the completion of the Dangote refinery, as well as the refurbishment of the existing government owned refineries. 

·         Ultimately, we remain less than optimistic on the progression of the oil and gas sector at large, in respect to major investments and implementation of innovative policy initiatives. Our view is backed by the likelihood of the status quo remaining the case in 2019.