Oil prices, which retreated after the OPEC production quota increase in April is finding strength, based on stronger than expected demand for energy. Bonny light has again risen to a high of $28.95 per barrel. The Saudi oil minister has said that he sees no need for a production increase at the OPEC meeting scheduled for June 21 in Vienna.  June contracts for West Intermediate Crude fell 19 cents to close at $29.73pb. IEA estimates that global demand will average 76.6mbpd in the 3rd quarter and 78.7mbpd in Q4, which is 2.2mbpd higher than in 1999. Cash call payments for April was paid one month late and at the 1999 level, which means that arrears of $166.4m will be paid in June. The breakdown of the cash call was $118m and N4.9bn. Meanwhile, the 1996-97 arrears estimated at $1bn are still outstanding as NNPC continues the verification exercise it commenced months ago. The country wide rig count for April is 6, down by 1 from March 7, indicating a slight drop in oil service activities. The Mobil/ Exxon merger is taking its toll in Lagos where contract and casual staff-shedding has commenced. The process is expected to lead to a major re-organisation and delayering. Chevron (Nig.) Ltd has commenced the drilling of its first exploratory well in Bauchi State, climaxing the company’s operation in the area, which began 5 years ago. The result of the drilling would be crucial to the company as it would determine the continuity or withdrawal of operations. Shell Exploration, and Elf pulled out of the Benue Basin in the North last year, when attempts to strike oil failed. Agip Oil Company Ltd  and NNPC have signed an MOU on the building and operation of a $350 gas fired power station to be located in Kwale, Delta state. The power station is expected to add 50 Megawatts of electricity to the National grid and compliment efforts towards the introduction of Independent power producers into the Nigeria's energy sector.

A significant recovery was recorded in the commodities market as the AIG commodities index rose 6% to 102.26. The CRB index also closed 2.1% higher at 217.13.

 Cocoa
World Cocoa production for the current 1999/2000 season is forecast to increase by 162,000  tonnes or 5.8% from 2.78m tonnes to 2.94m tonnes. However World grindings will only increase by 3.5% to 2.86m tonnes from an estimated 2.76 tonnes in 1998/99 season. It is expected that net world crop (gross crop adjusted by subtracting 1% for loss in weight) minus grindings, would be in excess of 50,000 tonnes, as against a deficit of 15,000 tonnes in 1998/1999. Therefore world stocks/grinding ratio would increase from 44.5% to 44.8% in the current season. End of season stocks is forecast to rise 4.1% to 1.28m tonnes in 2000.  Meanwhile, political jockeying in Ivory Coast forced cocoa prices up 3% to $837 per tonne,  the highest in 3 weeks. Ivorian Officials indicated the possibility of cutting supplies by 1m tonnes, as part of the restructuring of the market.

Wheat
Wheat bounced higher on expectation of better export prospects and lower world output this year. Wheat for July delivery rose 10.19% to $2.92pbu. In response, local price rose 5% to N2047.50 per 50kg bag, reflecting the vulnerability of the market to international price movements.

Obasanjo  reacts
Obasanjo is using executive leverage to destabilise his legislative adversaries including the Senate President, based on the philosophy that “all is fair in war”. He has successfully got the legislature to accept some of his amendments to the appropriation bill, thus achieving a compromise and averting a government shutdown.

 Nigeria on Sierra Leone
Nigeria is sending additional troops to Sierra Leone, where the fragile peace between the factions has broken down and the rebels are on a rampage. Obasanjo is requesting financial recompense to cover the additional costs to the country. The opposition believes that Nigeria is being dragged into a Vietnam-like situation where the exit barriers are very high. Even though Foday Sankoh,  the rebel leader has been arrested, intelligence reports indicate that the RUF is better armed than before, primarily because of the proceeds from smuggling of diamond to neighboring Liberia and then to Antwerp Belgium. The presence of British paratroopers is helping to instill confidence in the Government troops and the UN peace-keeping force.
New Minimum Wage approved !
The approval of the minimum wage of N7,500 ($75) per month for Federal Government workers, an increase of 114.29% from the last award approved some years ago, is seen as a positive step in the move towards poverty alleviation. The Nigeria Labour Congress has rejected the offer of N5,500 for state government employees.
                                                        
AD at it again
Political infighting has taken centre stage as the Alliance for Democracy Party prepares for its National Convention. The differences are purely on personality lines rather than ideological leanings. The 6 state governors are pitched against members of the national executive council. It is expected that these differences will be resolved and the party will continue to be a vanguard of Yoruba ethnic politics.

The Federal Office of Statistics (FOS) reported an unprecedented low inflation rate of 3.9% for February 2000, coming down from 5.5% in January. This represents the lowest price level since March 1991 when inflation rate was 4.3%. The FOS measures price changes based on nation-wide consumer basket, which is not a strictly urban price barometer. The trend of benign inflationary pressure has been consistent in the past few months owing to lower energy costs and food prices. The result of our Lagos CPI confirmed this trend, dropping from 2.04% in December 1999 to 0.30% and 0.15% in January and February before rising marginally to 0.21% in March 2000.  Recent indications are that there is a point of inflection with the 25% increase in domestic air fares driven by the 50% jump in the price of dual purpose kerosene (aviation fuel). The impact of a 114% increase in minimum wage and the negotiations in the private sector has already reflected in an increase in some prices of manufactured foods. Imported inflation is also rearing its ugly head in the supermarkets. Our Lagos CPI revealed 0.49% rise in price level in April while we expect a significant increase of 2.5% in May 2000. In an attempt to cushion the price effect of the wage increase, government announced a 25% slash in telephone installation charges from N20,000 to N15,000. Charges on international calls were also slashed by 25%, while domestic calls at off-peak periods such as weekends and public holidays were slashed by 50%. However, with an expenditure plan of N598bn and a 105% increase in minimum wage to N7,500, effective from May, we expect a demand pull effect on price level. Contrary to government’s optimistic target of a single digit inflation rate in 2000, we forecast a year-end inflation rate of 18%.