J.P. Morgan Warns Investors of Rising Risks for Nigeria as Oil Prices Fall

Investment Bank Urges Exit from Nigerian OMO Bills

U.S. investment bank J.P. Morgan has advised investors to exit long positions in Nigerian Open Market Operation (OMO) bills, citing growing macroeconomic risks. In a research note titled “Frontier Local Markets Strategy: Reducing risk further,” the bank warned that falling oil prices and renewed global trade tensions could destabilize Nigeria’s economy.

Shift in Investment Strategy

Previously supportive of Nigeria’s high-yield carry trade, J.P. Morgan has reversed its stance due to:

• Brent crude approaching sub-$60 levels
• Former U.S. President Donald Trump’s potential return and proposed global tariffs
• Increased vulnerability in frontier markets

Oil Price Threat to Nigeria’s Economy

With Nigeria’s breakeven oil price at $60/barrel, J.P. Morgan warns that sustained lower prices could:

• Push the current account into deficit
• Pressure the naira, potentially driving USD/NGN above 1,700/$1
• Trigger capital flight estimated at up to $10 billion

CBN’s Currency Defense Measures

The Central Bank of Nigeria has taken aggressive action to stabilize markets:

• Sold approximately $550 million in March to support the naira
• Allowed moderate 3.6% currency depreciation
• Faced dwindling dollar supply amid rising demand

Domestic Market Challenges

Nigeria’s fixed-income market shows signs of stress:

• OMO and T-bill yields rose 300 basis points recently
• Investor reluctance due to inflation and oil price uncertainty
• CBN forced to increase market interventions

Long-term Outlook

Despite near-term risks, J.P. Morgan maintains cautious optimism:

• Expects continued FX and subsidy reforms
• Anticipates improved domestic revenue through NNPC commercialization
• Recovery contingent on oil price stabilization and policy discipline

The bank concludes that Nigeria’s economic resilience will depend on its ability to navigate global headwinds while maintaining reform momentum.