Is Fuel Subsidy Removal The Needed Magic Wand For The Downstream Oil Sector?

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The news that the Nigerian federal government removed subsidy is a bad news to many Nigerians. However, it is turning out to be a good news for the downstream oil sector.

Barely 24 hours after Ibe Kachikwu, the Minister of State for petroleum, announced the total removal of fuel subsidies, the financial markets are smiling on major energy stocks.

As monitored on the Bloomberg terminal, stock of major downstream energy companies quoted on The Exchange (Nigerian Stock Exchange) are soaring from the news. Analysts polled said the removal of subsidy is a sign to foreign investors that the sector will allow market forces to determine prices by fostering competition and innovation.

The central control of prices by the federal government of Nigeria has been an impediment to foreign and local investors who are not convinced of the consequences that might befall their investment should another policy overwrite what they had planned with.

forte subsidy
Forte Oil Shares. Source: Bloomberg. Data is 15 minutes delayed. T&C applies

Shares of Forte Oil a major player in the downstream and lubricant sector has been going up since the news. Forte is included in the MSCI emerging market index. Foreign investors might be increasing their exposure to more energy stocks in the coming weeks as soon as the news becomes a fact.

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