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Despite crude oil prices falling to $36 per barrel in the last few days, Premium Motor Spirit (PMS) is still being sold at between N159 to N162 per litre across the country, by petroleum marketers.
This is in sharp contrast to the swift action that they take whenever fuel prices are adjusted upward due to the movement of oil prices in the global market. With the market already deregulated, marketers are solely responsible for price determination.
In August, when the price of crude climbed to $45.40/barrel, the pump price of PMS in the country rose to between N159 to N160 per litre, and has remained same although crude oil price has steadily dropped to about $36 per barrel.
In line with the monthly templates hitherto adopted by the Petroleum Products Pricing Regulatory Agency (PPPRA), consumers were hoping that fuel prices would be adjusted for this month (November) to a retail price band of N143-N145/litre, which was the case when oil traded within the same margin in June.
In June when oil traded between $40-$42 per barrel, the PPPRA announced a new retail price band for oil marketers for the month of July. It was within the price range of N140.80 and N143.80.
Indeed, at $37.31 per barrel for Nigeria’s Bonny Light and $37.46 for Brent Crude as at last Friday, Nigerians were hoping that the price of petrol would drop to the July benchmark, or even lower for this month.
Oil prices hit a five-month low as COVID-19 cases climb, new lockdowns put in place, and reports emerged that the Organisation of Oil Producing Countries (OPEC) may not maintain its production cut in 2021.
The Minister of State for Petroleum Resources, Timipre Sylva, had said that market forces determining prices of petroleum products was in line with global best practices, adding that government would continue to play its traditional role of regulation to ensure that this strategic commodity was not priced arbitrarily, by private sector suppliers.
But most stakeholders are worried that marketers have retained the higher price band since the Federal Government handed the right to determine prices to them.
Unlike when the PPPRA was modulating the prices based on market realities, the NNPC and marketers claim of still trading the old stock is not making much sense to consumers even as the NNPC remains the sole importer of fuel into the country.
Clearing its new position, the PPPRA said since the introduction of the deregulation policy in March this year, it ceased to play any role in determining fuel price.
The agency’s executive secretary, Abdulkadir Saidu, earlier said under the new arrangement, marketers are now solely responsible for determining retail fuel prices in the country based on market fundamentals.
In April, Sylva pointed out that with the deregulation policy, a fuel price modulation mechanism would be established to determine prices.
The arrangement, he said, would allow the government to focus on its traditional role of monitoring and enforcing compliance with regulations to avoid profiteering by the marketers.
The Executive Secretary/Chief Executive Officer, Major Oil Marketers Association of Nigeria (MOMAN), Clement Isong, explained that the international price of refined products and exchange rate are two major components that determine the pump price of petrol.
According to him, the importer of refined petroleum products of note today remains the NNPC/Petroleum Products Marketing Company (PPMC) as they are the only ones with access to foreign exchange, and they use the exchange rate indicated to them by the CBN to determine their cost price in naira.
“PPMC will set their ex-depot price based on these two parameters. Based on the information within the public purview today (Platts and I&E exchange rate window), and the current large volume of PPMC pre-ordered stock floating in vessels within our coastal waters, we expect only marginal, or limited price changes if any at all in the PPMC ex-depot price.
“As marketers improve their efficiencies, automate their processes and adapt their marketing strategies, you will find some marketers being able to reduce their pump prices to remain competitive, or manage their relationships with their bankers, equity shareholders and/or business financiers,” he added.
The Independent Petroleum Marketers Association of Nigeria (IPMAN) told The Guardian that marketers are willing to reduce the price of petrol, but noted that the ex-depot price of NNPC remains the same.
The Vice President of IPMAN, Abubakar Shettima, said it was normal for price of product to reduce if crude oil price is declining, especially as the country has transited to a deregulated market.
Spokesperson of the NNPC, Kennie Obateru, noted that it could take a while for the reduction in the crude oil price to reflect in the pump, maintaining that the current product was ordered based on the old price of crude.
He noted that the corporation would not hesitate to reduce the price as soon as other prevailing factors, including the exchange rate favour such move.
Obateru had noted that over two billion litres of PMS are currently in stock in the country, which is expected to guarantee steady supply, and at least 60-day-product supply sufficiency.
A mineral/energy resource economist, and former president of the Nigerian Association for Energy Economists (NAEE), Wunmi Iledare, said prevailing factors in the country, especially the exchange rate, perception of public policy, and incoherent conversation on deregulation would continue to affect the pump price of petrol.
Iledare, who said that the current situation should not create worry for consumers, added that the uncertainties in the country were changing faster than the decline in crude prices.
“Nonetheless, as competition increases with improved domestic refining capacity, things will stabilise, especially with significant reduction if PMS frees demand on forex,” Iledare said.
Also, a Professor of Economics at Babcock University, Segun Ajibola, said the absence of pricing model in the country does not create transparency in the determinant of the pump price.
According to him, as conversation rages on the transition to a deregulated market, these are areas that Nigeria needs to work on to create a meaningful nexus between the international price of crude oil, and the local price of fuel.
The director of Centre for Petroleum Energy Economics and Law, University of Ibadan, noted that petrol price won’t immediately drop as crude oil price drops.
He explained: “Some of the transactions are based on long-term contracts. However, if crude oil prices remain in the low-price territory, then petrol prices should adjust.”
PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola, pointed out that foreign exchange has a significant influence on the retail price of fuel beyond the crude oil price at the international market, adding that what is being sold is old stocks purchased over two months ago.
He, however, noted that under the deregulated sector, forces of demand and supply should drive price at the pump.
Jaiyeola said he also expects a level of competition among marketers as the case should be in a deregulated market.
“This will, however, be a gradual development. The PPRA despite allowing a free market needs to up its game in monitoring the market to ensure that marketers do not take advantage of fixing prices.
“We are expecting to see prices that are profitable for marketers, and also that are reasonable for Nigeria. There is a lot more that determines the landing cost,” he said.
