Petrol prices in Nigeria are likely to increase for the third time since subsidy removal.
This is based on the recent surge in international market prices for petroleum products and the continued devaluation of the Naira against the Dollar, especially in the parallel market where most importers source forex.
Insider sources, who prefer to remain undisclosed, have revealed to Nairametrics that the next round of imports into the country could push prices up by a minimum of another N100 or more due to a surge in global crude oil price.
The increase could result in pump prices selling for between N660 and N700 per litre.
Landing Cost Analysis
According to reliable sources and data obtained by Nairametrics, the Platt benchmark price for petroleum products reached a staggering $979.75 per metric ton (MT) at the close of Wednesday’s trading session.
When factoring in regular premium operational fees of $50, the average cost per MT of fuel could escalate to an alarming $1,025.75.
Additionally, the Argus benchmark price trading platform reported prices of $960.86/MT and $1,010.86, including premium operational costs.
By applying the standard volume conversion rate of 1,341 litres per metric ton, the benchmark dollar cost ranges between $0.7538 to $0.7649 cents per litre.
Consequently, the average landing cost per litre is projected to fall to between N655.06 and N669.29.
Marketing and Distribution Costs
Industry players are now responsible for conveying petroleum products to retail dispensing points, incurring an average cost of between N3 to N9 for distribution within Lagos and N14 to N45 to other parts of the country.
This shift implies that retail pump prices in Lagos could range between N658.06 and N664.06, where the purchase price is at N655.06 and N672.29 to N678.29, where the purchase price is at N669.29.
Other parts of the country may experience pump prices ranging from N669.09 to N700.06 on a lower landing cost purchase price to as high as N683.29 and N714.29 on a higher landing cost purchase price.
Market Perception and Challenges
Amidst market price volatility, suppliers and marketers are grappling with the challenges of meeting demand while dealing with exchange rates of between N869 and N875 per US dollar.
Traders are expressing concerns over the current market volatility and displaying reluctance towards petroleum product importation. This reluctance persists as the market remains non-cost-reflective despite the removal of subsidies.
The dominant position of the Nigerian National Petroleum Corporation Limited (NNPCL) as the main supplier of petroleum products further complicates the situation.
Speculations suggest that NNPCL is unlikely to increase pump prices, which could lead to significant losses and resurrect inherent subsidy dynamics in the market.
Effects of Subsidy Removal
The removal of fuel subsidies has had a profound impact, causing a drastic surge in petrol prices by a staggering 170%. Before the subsidy removal announcement, the average price per litre was around N185.
However, immediately after the removal, prices skyrocketed to an average of NGN500 per litre. Subsequently, prices climbed a second time even higher by an additional 23%, reaching an average of N617 per litre across the nation.
These frequent and substantial fuel price hikes are occurring amid Nigeria’s persistent inflationary pressures. As of June, the inflation rate had surged to a concerning 22.79%.
This conflux of events poses a significant threat to the financial stability and well-being of millions of Nigerians, as it may potentially push them further into multidimensional poverty.
What you should know
Nairametrics reported on July 19, 2023, that the Major Oil Marketers Association of Nigeria (MOMAN) revealed significant factors influencing fuel pump prices in the country.
According to MOMAN’s explanation, approximately 80% of the fuel pump price is directly tied to Forex rates and international crude oil prices.
In a separate piece, Nairametrics provided a comprehensive breakdown of the landing and distribution costs associated with importing petroleum products. This explainer shed light on the various components contributing to the final retail price of petrol.
However, the situation has taken a concerning turn due to the persistent surge in crude oil prices. On Tuesday, August 1, 2023, crude oil was trading at $81.69 per barrel, and analysts project that it could reach the $85 mark by the year’s end.
Consequently, Nigerian consumers may expect further increases in petrol pump prices before the close of the year. The implications of these price fluctuations could have substantial effects on the country’s economy and citizens’ daily lives.
Sustainable Solutions Needed
Considering the current situation, it is essential to approach this matter with careful and astute deliberation, implementing appropriate measures to alleviate the burden on the already vulnerable population.
The projections of crude oil prices reaching $85 per barrel by year-end, coupled with the instability of the Naira against the Dollar, may result in further hikes in petrol pump prices.
To protect its citizens from the impact of these soaring fuel costs, Nigeria must proactively seek sustainable solutions that can effectively navigate the intricacies of global market dynamics and the volatile foreign exchange (FX) market.
By doing so, the nation can shield its populace from the adverse effects of exorbitant petrol prices and foster economic stability amidst challenging circumstances.
