Meristem Securities Limited has forecasted that Nigerian oil and banking stocks stand to gain from the continued surge in global crude oil prices, driven largely by escalating geopolitical tensions in the Middle East.
In its latest macroeconomic and capital market update, the investment firm noted that the rising oil prices could significantly impact Nigeria’s economy and financial markets, with upstream oil firms and commercial banks emerging as primary beneficiaries.
The report spotlighted companies like Seplat Energy Plc, Geregu Power Plc, and Aradel Holdings Plc, projecting improved earnings for these firms due to their upstream operations and ability to leverage the gains from higher crude prices.
However, Meristem warned that elevated inflation and high interest rates could strain the real sector by squeezing profit margins and limiting credit access. In contrast, commercial banks are expected to benefit from the high-rate environment, with improved net interest income helping to sustain their earnings growth and attract investor interest.
The report also highlighted the broader macroeconomic implications, suggesting that the oil price rally could boost Nigeria’s foreign exchange earnings and fiscal revenue, thereby supporting exchange rate stability and short- to medium-term fiscal health.
“With crude oil being the primary source of Nigeria’s foreign exchange, a sustained rally in global prices could improve FX inflows, enhance liquidity in the official FX market, and bolster exchange rate stability,” Meristem stated.
Nonetheless, the firm cautioned that Nigeria’s chronic underperformance in oil production could limit the potential benefits.
It also flagged concerns about inflationary pressures stemming from the country’s deregulated fuel pricing, which would expose consumers directly to rising global oil prices.
“A steep rise in crude oil prices will translate into higher domestic petrol prices, affecting transport costs and likely pushing up food inflation due to higher distribution costs,” the report noted.
On the fixed-income front, Meristem observed that ongoing global interest rate hikes—particularly by the U.S. Federal Reserve—coupled with domestic inflation concerns, may keep yields attractive in Nigeria’s bond market, maintaining investor interest.
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In conclusion, the firm noted that while the overall market outlook remains mixed, investor sentiment is expected to favor oil and banking stocks, while equities in the real sector may experience weaker momentum amid inflationary and credit constraints.
