Marketers sketch higher fuel price on 37% rise in landing cost
By Jeph Ajobaju, Chief Copy Editor
Fuel marketers are sketching a third hike in pump price within three months in order to recoup their investment with a higher landing cost likely to lift final retail price beyond N700 per litre.
The current price in most parts of the country is between N580 and N620 per litre.
Operators lament the landing cost of petrol has jumped 37.4 per cent month-on-month (MoM) to N632.17 per litre in July from N460 per litre in June.
Landing cost excludes other additional costs such as depot charges, transportation logistics, and marketers’ margin – which will combine to bring delivery at filling stations to nearly N700 per litre
Industry sources said the landing cost for August is expected to rise further as the factors that propelled the rise in July have worsened.
They cited scarce foreign exchange (forex), which has persisted, while exchange rate continues to deteriorate.
Naira had depreciated last weekend by about 6.5 per cent in the official market and 25 per cent in the parallel market since the last increase in pump price in July.
The cost of fuel import is also rising in response to hikes in the price of crude oil on the international market, where the total direct cost is N604.14 per litre, according to Vanguard.
A breakdown of the cost shows
- Cost per litre – N578.46
- Freight (Lome-Lagos) – N10.37
- Port charges – N7.37
- NMDPRA levy – N4.47
- Storage – N2.58
- Marine insurance – N0.47
- Fendering – N0.36
- “others” – N0.05
- Finance – N28.04
The landing cost of 28,000 metric tonnes of imported petrol is $25 million, including total product cost, total direct cost, total finance cost, which can generate more than N22 billion as sales revenue – a loss of over N1.6 billion.
Marketers said it is unprofitable to import at current pump price while the government has not guaranteed a free float of pump prices.
The Nigerian National Petroleum Company (NNPC) was the only petroleum products importer in July apart from minor private imports.
The situation is worsening as Nigeria’s crude oil output is now declining, threatening the capacity to import refined products.
The Organisation of Petroleum Exporting Countries (OPEC) noted in its August 2023 Monthly Oil Market Report the dwindling output of many nations, citing Nigeria’s oil production dropped 6.5 per cent year-on-year (YoY) to 1.26 million barrels per day (bpd) in July 2023, from 1.2 million bpd in July 2022.
The output decreased 3.0 per cent MoM to 1.26 million bpd in July 2023 from 1.3 million bpd in June 2023.
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Views of industry operators
“It is good because the high crude oil prices mean additional revenue to the federal government. The revenue would likely be used to fund projects and programmes because the government is no more involved in the payment of fuel subsidy,” said Independent Petroleum Marketers Association of Nigeria (IPMAN) National Operations Controller Mike Osatuyi, according to Vanguard.
“But Nigerians will have to pay more for fuel, which prices have been deregulated. The prices are currently high, but we are optimistic that the prices will fall as a result of competition in future.”
The Managing Director of a major operator, who pleaded anonymity, said the instability and volatility in the downstream sector have discouraged importation and investment expected of a deregulated market.
He urged President Bola Tinubu to intervene in the management of forex to rescue deregulation and the downstream sector from confusion, stagnation, and eventual collapse.
“We have gotten to a point where … Tinubu’s intervention is inevitable. Even if we have the resources to import, we cannot be very sure at what price the product would be sold.
“So, it is better to hold on and see the way things would unfold in the coming months,” he said.
The situation may get worse, putting pressure on local and international dealers to adjust prices.
“Nigerian crude values have seen an upward trend over the past few weeks, which could be attributed to steady demand from Europe,” said Argus, a market intelligence based in the United Kingdom.
“Indeed, high crude prices and continuous depreciation of the naira pose as deterrents to the effectiveness of the deregulation and active participation by more marketers,” Funmi Bashorun, Business Development Manager, West Africa, added in an email to Vanguard.
“However, as long as Nigeria still has to import gasoline, European oil traders will still look to cover that supply. The volumes, of course, may be less to Nigeria and more direct to other parts of West Africa because of less smuggling, but the prices will still be high.
“We at Argus encourage, as we have been, that importers look more into the pricing terms from their suppliers. For transparency in the supply chain, fairness and more, the pricing benchmark for gasoline should be Argus’ Eurobob.”