The newly minted Global X Nigeria Index ETF (NYSE:
) is trading lower by 2.5 percent Wednesday, reaching its lowest
level since debuting exactly two weeks ago.
The culprit behind the new ETF's Wednesday woes will not come
as a surprise to investors that are even remotely familiar with
Africa's second-largest economy.
Oil futures are getting slammed a day after the International
Monetary Fund trimmed its outlook for global economic growth. New
York-traded oil for May delivery is lower by nearly 1.7 percent
and that comes on the heels of an almost three percent
The June contracts are in even worse shape with West Texas
Intermediate for delivery in that month lower by 2.64 percent and
Brent crude for June delivery down 2.37 percent
on the ICE Futures Exchange
The correlation between the new Nigeria and oil futures has
been obvious. NGE debuted on April on April 3 and the highest
closing price for the ETF since then is $15.83. On that day, West
Texas Intermediate for June delivery was trading around $93.50
per barrel. Today, that contract is hovering around $86.70 per
Said another way, that contract has fallen about 7.3 percent
since NGE came to market. From its highest point to today's low,
the Nigeria ETF is off 8.1 percent. That is a pretty good
correlation and one that is not too surprising.
The energy sector
accounts for about 80 percent of Nigeria's
, not surprising given that the country is Africa's largest oil
producer and a member of the Organization of Petroleum Exporting
NGE reflects Nigeria's status as an OPEC member with a 24.3
percent weight to the energy sector. Only financial services at
41.3 percent account for a larger part of the ETF's sector
weight. Nigeria primarily produces light, sweet crude, a variety
of crude that is prized for its ease in refining.
In January, Nigeria was the third-largest OPEC supplier to the
U.S. behind Saudi Arabia and Venezuela and the fifth-largest
supplier to the U.S. overall behind those countries, Canada and
according to the U.S. Energy Information
In the near-term, slower global growth is an obvious burden on
oil futures and that in turn could hamper NGE. That said,
Nigerian equities have surged this year and GDP growth there is
forecast to be six percent this year. Adding to the long-term
bull case for Nigeria is the fact that it is home to 15 percent
of Africa's population and could be the same size as the U.S. by
according to Jim O'Neill
, chairman of Goldman Sachs Asset Management.
In the near- to medium-term, however, Nigeria, and by virtue
NGE, face an oil problem. As in one of its best customers, that
being the U.S., is buying less oil. Arguably, few exporters of
oil to the U.S. have been hit by soaring U.S. production the way
Nigeria has been.
January imports of Nigerian crude spiked, but that number was
seen as an anomaly. In February, U.S. imports of Nigerian oil
fell by 352,000 barrels per day,
according to Bloomberg
Of course, Nigeria can find willing buyers in Asia, namely
China, but shipping costs eat away at Nigeria's profit in that
scenario. The trip to Tianjin, China, is 12,172 miles from
Nigeria's Bonny Terminal, more than double the distance to New
York Harbor, according to All Africa.
Slowing growth and falling oil imports to the U.S. mean other
Nigerian industries will need to chip in to drive domestic demand
and facilitate a more diverse economy. That scenario would boost
the long-term allure of NGE.
For more on Nigeria, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Profit with More New & Research
. Gain access to a streaming platform with all the information
you need to invest better today.
Click here to start your 14 Day Trial of Benzinga