Crude Rise to Lift Stocks

Meristem Securities Limited has projected that Nigerian oil and banking stocks will benefit
from the continued increase in global crude oil prices, driven by geopolitical tensions in the
Middle East.
In its latest macroeconomic and capital market report, Meristem noted that the crude price
surge could impact Nigeria’s economy and financial markets, with upstream oil firms and
commercial banks positioned as major beneficiaries.
The report highlighted companies like Seplat Energy Plc, Geregu Power Plc, and Aradel
Holdings Plc as likely to see stronger earnings in the near term due to their upstream
operations and capacity to leverage higher crude prices.
The report noted, “Meanwhile, high inflation and interest rates are expected to strain the real
sector by squeezing profit margins and restricting access to credit. On the other hand, banks
are set to benefit from the high-rate environment through increased net interest income,
supporting their strong earnings performance and maintaining investor interest.”
Meristem also highlighted that current trends in the oil market could strengthen Nigeria’s
foreign exchange earnings and increase government revenue, contributing to exchange rate
stability and improved fiscal sustainability in the short to medium term.
The firm stated, “With crude oil still being Nigeria’s primary source of foreign exchange, a
sustained increase in global oil prices could lead to higher FX inflows. This would improve
prospects for exchange rate stability, especially if accompanied by stronger capital inflows
that boost liquidity in the official FX market.”
However, the report warned that the benefits of rising oil prices could be constrained by
Nigeria’s ongoing underperformance in crude oil production, which still falls short of
projected targets. It also noted that inflationary pressures could escalate due to the
deregulated fuel pricing system.
Meristem Securities has warned that a significant increase in global crude oil prices would
directly impact domestic petrol (PMS) prices, potentially driving up transportation costs and
contributing to higher food inflation due to increased expenses in moving goods and
agricultural produce. In its latest report, the firm also noted that continued global interest rate
hikes particularly by the U.S. Federal Reserve
combined with domestic inflation concerns, could maintain attractive yields in Nigeria’s fixed-
income market, sustaining investor interest. While the overall market outlook appears mixed,
Meristem projected that investor sentiment is likely to favor oil and banking stocks, given
their resilience and earnings potential in the current economic climate. In contrast, equities in
the real sector may struggle to gain momentum as high inflation and limited access to credit
continue to pressure profit margins and dampen performance. The firm emphasized that oil
market dynamics and monetary policy will remain key drivers of market direction in the short
to medium term.