When the Global X Nigeria Index ETF (NYSEARCA:NGE) debuted six weeks ago, traders familiar with the country and the oil patch immediately pondered just how correlated to oil prices and headlines the new ETF would be.
Not surprisingly, NGE, the lone ETF to exclusively track Africa's largest oil-producing nation, is showing a noticeable sensitivity to oil news and prices. In the past month, NGE is up 3.7 percent while the U.S. Oil Fund (NYSEARCA:USO) is higher by almost five percent. Going back a bit further, in the first two week's of NGE existence, West Texas Intermediate futures fell 7.3 percent, taking NGE down 8.1 percent in the process.
The new ETF is surprisingly steady Monday, trading unchanged after Nigeria's April oil output figures were released over the weekend. Last month, Nigeria pumped an average of 1.734 million barrels per day, down from 1.746 million barrels per day in March, Guardian Nigeria reported, citing the Organization of Petroleum Exporting Countries.
OPEC member Nigeria depends on oil production for 80 percent of government revenue, which is to say falling output at the hands of increasingly ambitious militant rebel groups is not good news.
That proof is in the pudding. The Central Bank of Nigeria said the country earned $10.1 billion in first-quarter oil revenue, well below the $11.6 billion taken in during the fourth quarter of 2012. The problem of declining oil revenue in Nigeria could get worse before it gets better.
The Minister for the Economy and Minister of Finance estimates the country is currently losing $1 billion a month in revenue due to production issues, according to the Guardian.
That is a significant loss of revenue for a frontier market and an issue that investors need to be aware of with an ETF that devotes over 24 percent of its weight to the energy sector. International oil companies operating in Nigeria, such as Chevron (NYSE:CVX) and Royal Dutch Shell (RDS.A), must contend with increasing levels of theft and attacks on oil assets in the Niger Delta, home to the bulk of Nigeria's oil production.
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