Fresh fuel price hike looms as landing cost rises by 37.4%
There are signs that the pump price of petrol in Nigeria will experience another round of increases, which would be the third increase in the past 10 weeks. Oil marketers have indicated that the landing cost of petrol rose by 37.4% to N632.17 per liter in July 2023, compared to N460 per liter in June 2023. This increase in cost is primarily due to the sustained rise in crude oil prices and the deteriorating exchange rate, both of which have worsened in recent weeks.
The landing cost of petrol is expected to rise further in August as the factors that drove the increase in July have continued to worsen. Foreign exchange scarcity and depreciation of the Naira in both official and parallel markets are major concerns. Additionally, the cost of fuel importation is rising in response to the higher prices of crude oil in the international market
A transactional analysis of a major operator revealed that the total direct cost paid by marketers was N604.14 per liter. This includes various costs such as product cost, freight charges, port charges, and finance costs. With a significant increase in the landing cost, it has become unprofitable for marketers to import at the current pump price.
The Nigerian National Petroleum Company Limited (NNPCL) has become the primary importer of fuel, with only minor private importation recorded recently. However, the situation is further aggravated by the decline in Nigeria’s crude oil output, which threatens the capacity to import refined products. OPEC’s August 2023 Monthly Oil Market Report highlighted the dwindling output of many nations, including Nigeria, whose oil production dropped by 6.5% on a year-on-year basis.
The increase in oil prices has brought additional revenue to the federal government, which no longer pays fuel subsidy. However, Nigerians will have to pay more for fuel due to the deregulated pricing. The market volatility and uncertainty have discouraged importation and investment in the downstream sector. Market intelligence from Argus suggests that Nigerian crude values have been trending upward due to steady demand from Europe, indicating that prices may continue to rise.
The high crude prices and depreciation of the Naira pose challenges to the effectiveness of deregulation and active participation by more marketers. As long as Nigeria continues to import gasoline, European oil traders will supply the demand. However, importers are encouraged to negotiate pricing terms with suppliers for transparency and fairness in the supply chain.