The Nigerian petroleum market is experiencing a period of uncertainty, driven by fluctuating fuel prices and the consequent apprehension among independent marketers. While the advent of local refining, particularly through the Dangote Refinery, has increased fuel availability, the unpredictable pricing dynamics are causing hesitation among retailers to purchase and stock fuel, potentially leading to disruptions in supply. This phenomenon, referred to as “price scare,” is primarily driven by the significant financial risks associated with price drops, which can lead to substantial losses for marketers who have purchased fuel at higher prices. This fear is further compounded by the fact that marketers are often left to absorb these losses without any form of government intervention or compensation.
The recent entry of the Dangote Refinery into the market, along with the deregulation of the downstream petroleum sector, has created a more volatile pricing environment. Frequent price adjustments by both Dangote and the NNPC have made it challenging for independent marketers to predict market trends and manage their inventory effectively. The fear of purchasing fuel at a higher price, only to have the price drop shortly thereafter, leaving them with losses, is a significant deterrent to stocking up. Marketers highlight the fact that price increases are merely adjustments to reflect the current market value and not an opportunity for increased profits. Rather, these adjustments are essential for them to remain in business and replenish their stock.
The financial strain on independent marketers is substantial. The significant capital investment required to purchase fuel, coupled with the relatively thin profit margins, creates a high-risk environment. Marketers cite examples of spending nearly N50 million on a truckload of fuel and realizing a profit of less than N300,000. This tight margin makes it difficult to absorb losses when prices fall unexpectedly. The situation is pushing smaller players out of the market, leaving the field open to larger, more established “gladiators” with greater financial resilience.
The overall impact on fuel availability is a nuanced issue. While outright scarcity is unlikely given the current refining capacity, the market is likely to experience periods of “epileptic supply,” where availability fluctuates due to the cautious approach of marketers. This could disproportionately affect rural communities with limited access to fuel supplies. The price fluctuations and associated risks are making the petroleum marketing business increasingly challenging, particularly for smaller independent operators. The high capital requirements, coupled with the unpredictable pricing landscape, are creating an environment where only the largest players can comfortably operate.
An added layer of complexity arises from the interplay between local refining and importation. While the intention behind supporting local refineries like Dangote is to boost domestic production and reduce reliance on imports, the current pricing structure presents a challenge. The cost of locally refined petrol is currently higher than imported petrol, leading some marketers to consider reverting to imports despite the desire to support local industry. This dynamic underscores the need for a balanced approach that considers both the benefits of local refining and the competitive pressures of the global market.
Despite the challenges, there is a strong sentiment within the marketing associations to prioritize local refining. Retail outlet owners are advocating for policies that support domestic production and the development of local capacity. They are encouraging the government to provide financial assistance in the form of single-digit interest loans to enable independent marketers to remain competitive and avoid job losses. This strategy reflects a long-term vision focused on building a sustainable and robust domestic petroleum industry. However, addressing the concerns of independent marketers regarding price volatility and profitability will be crucial for ensuring a stable and reliable fuel supply chain.
