Oil prices drop on demand concerns as new COVID-19 restrictions loom

Oil prices have taken a hit, shedding some of the gains recorded earlier this week as concerns over demand resurface amidst new COVID-19 restrictions in Europe. Victor Aluyi, Head of Portfolio Management at Comercio Partners, discussed the impact of these developments on oil demand, Nigeria's bond rates, and expectations for the upcoming OPEC meeting in April. Aluyi highlighted the decline in oil prices due to the resurgence of COVID-19 cases in Europe, causing a drop of about 17% over the last three weeks, with crude now trading at around $63 a barrel. He noted that Nigeria's oil production has been affected by OPEC+ agreements and is currently at 1.44 million barrels per day, down from 2.04 million in 2019. Aluyi expects OPEC+ to maintain status quo at the upcoming meeting, closely monitoring the COVID-19 situation's impact on demand. Shifting focus to Nigeria's domestic bond market, Aluyi explained that bond yields rose to a 9-month high due to the unsustainable low yield environment from last year and the widening fiscal deficit. He anticipates further repricing in government debt until participants feel adequately compensated for macro headwinds. Regarding interbank rates, Aluyi noted stability in overnight and OBB markets, attributing fluctuations to liquidity levels. He expects funding rates to expand in the absence of significant liquidity this week, with next week's rates dependent on incoming liquidity flows. Discussing Fitch's recent ratings for Nigeria, Aluyi viewed it as a positive affirmation of the country's economic strength, citing stable GDP ratios, low external debt, strong currency, and a robust financial system as key drivers. He also commented on the decline in bank borrowings from the Central Bank, interpreting it as a sign of improved liquidity management and resilience within the banking sector. In conclusion, Aluyi expressed optimism for Nigeria's economic prospects, buoyed by Fitch's positive outlook and the banking sector's enhanced resilience.