On Sunday, it was communicated by oil marketers that the potential escalation of Premium Motor Spirit (petrol) cost could occur, reaching an estimated range of N680/litre to N720/litre in the upcoming weeks if the exchange rate of the dollar remains within the bounds of N910 to N950 on the parallel market.
The difficulties faced by dealers seeking to import PMS were underscored due to limited foreign exchange availability for commodity imports. This advisory message emerged shortly after the local currency surpassed the N900/dollar threshold, with the naira trading beyond 945/dollar on the parallel market by the end of the week.
Explanations were given by oil dealers indicating that the official foreign exchange window overseen by the CBN Importers and Exporters, offering a lower exchange rate of approximately $740/litre, lacked sufficient liquidity to provide the necessary $25 million to $30 million required for PMS imports.
As a result of this scenario, dealers have postponed their plans for importing petrol, despite their initial intentions. Representatives of key oil dealers conveyed on Sunday that a possible upswing in PMS price loomed, contingent on the local currency’s performance in the following weeks.
Leaders from several associations, including the Major Oil Marketers Association of Nigeria, Independent Petroleum Marketers Association of Nigeria, and Petroleum Products Retail Outlets Owners Association of Nigeria, stressed the urgency for intervention by the Federal Government to address the crisis.
Chief Chinedu Ukadike, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, clarified that the pricing of petrol was now linked to forex fluctuations, suggesting the likelihood of a price hike. He affirmed that, “A devaluation of the naira against the dollar would inevitably have an impact. Forex supply and demand play a critical role. It’s important to recognize that forex isn’t exclusive to petroleum products. Other importers also require dollars. With the dollar nearing N910 to N940 and even approaching N1,000, it’s foreseeable that PMS might be priced at N750/litre. The relationship is straightforward: as the dollar gains strength, petroleum product prices will naturally rise due to their dollar-dependent nature.”
Ukadike disclosed that oil marketers were still sourcing dollars from the parallel market due to the lack of liquidity in the CBN’s Importers and Exporters window. He stated, “Nigerians should prepare for prices ranging from N680 to N720 if the exchange rate hovers around N910 to N950/$. However, should the dollar climb to N1,000, prices could reach N750. This is because not only marketers but virtually all importers in Nigeria obtain dollars from the parallel market. Subsidies on petroleum products are no longer in place, making price fluctuations in sync with the dollar’s shifts.”
Ukadike additionally shared that the Nigerian National Petroleum Company Limited remained the primary importer of petrol into Nigeria, though another importer, Emadeb, had recently entered the market. “For now, NNPC remains the predominant importer. Emadeb has made recent imports, but as the product is sold in naira, recuperating investments becomes challenging due to naira depreciation. Meanwhile, PMS imports are denominated in dollars. This clarifies the predicament faced by independent importers when making subsequent purchases,” Ukadike highlighted.
Regarding the timing of potential price increases, he noted, “NNPC is currently the primary distributor of petroleum products. Thus, when price adjustments are observed at their outlets, other marketers are likely to follow suit.”
Clement Isong, the Executive Secretary of the Major Oil Marketers Association of Nigeria, pointed out that despite the government granting licenses to around six marketers for product imports, dealers were refraining from importing petrol.
He elaborated, “The I&E window is lacking in liquidity. Adequate funding isn’t available. The cost of procuring products ranges between $25 million to $30 million, a sum that the I&E window cannot accommodate. This is the reason behind the lack of imports.”
Isong emphasized that Nigeria needed to address security concerns in the Niger Delta to boost crude oil output, subsequently increasing the availability of dollars.
In response to potential petrol price hikes, Isong conveyed that such increases were likely if the dollar’s ascent against the naira persisted, although government intervention might be required.
He clarified the distinction between petrol and diesel pricing, as petrol had been recently deregulated. “NNPC holds a significant portion of the stock, thereby influencing market prices. Diesel, however, has been deregulated for a while. Dealers’ pricing for petrol is influenced by their cost structures, bank loans, forex rates, and more. Multiple factors contribute to their pricing decisions. The pricing of PMS isn’t dictated by a single entity. Presently, NNPC guides the pricing trend, but this will change over time,” Isong expounded.
Billy Gillis-Harry, the President of PETROAN, underlined that as long as the naira weakens against the dollar, petrol prices at retail outlets would persistently rise. He urged action on Nigeria’s refineries to alleviate the situation.
“We’ve recommended that the President declare a state of emergency for our refineries to expedite repairs. This stands as the most feasible solution for stabilizing petroleum product prices. Currently, the price of each PMS at retail outlets is linked to the dollar,” Gillis-Harry elucidated.
In the previous week, the CBN attributed the naira’s depreciation against the dollar to the diversion of Diaspora remittances to the parallel market.
Folashodun Shonubi, Acting CBN Governor, delivered a lecture titled ‘Diaspora Remittances and Nigeria’s Economic Development’ at the National Institute for Security Studies in Abuja. He highlighted that unrecorded Diaspora remittances were ending up on the parallel market in dollars.
The exact timing of intervention from President Bola Tinubu’s administration in addressing the unfolding crisis remains uncertain.