The Nigerian downstream oil sector is experiencing a period of dynamic price fluctuations, characterized by a price war that has led to a decrease in the landing cost of imported Premium Motor Spirit (PMS), commonly known as petrol. As of Monday, the landing cost had dropped to N797 per litre, a significant reduction from previous figures. This downward trend is driven by competition among market players, including the Dangote refinery and private fuel depots, each vying for market share by adjusting their prices. While this price war benefits consumers with lower fuel costs, it simultaneously creates challenges for oil marketers and importers facing substantial financial losses.
The decreased landing cost is a result of multiple factors, primarily driven by the competitive landscape. The Dangote refinery initiated a price reduction at its loading gantry, lowering the cost from N825 to N815 per litre. This move triggered a chain reaction among private depots, forcing them to lower their prices to remain competitive. This price war, though beneficial to consumers, is unsustainable for marketers who are incurring significant daily and monthly losses, estimated at N2.5 billion and N75 billion respectively. This precarious situation has prompted calls for regulatory intervention to stabilize the market.
The Major Energies Marketers Association of Nigeria (MOMAN) has provided detailed data on the cost breakdown of imported petrol. Their analysis reveals that the on-spot estimated import parity into tanks, which encompasses various expenses like shipping, import duties, and exchange rates, stands at N797.66 per litre. This figure marks a notable decrease of N20.16 compared to the landing cost of N817.82 per litre recorded the previous Friday. The data further highlights a reduction in on-the-spot sales at the NPSC-NOJ terminal, dropping to N797.73 per litre from N817.90 per litre. The 30-day average cost also decreased to N851.76 per litre from N854.15.
The fluctuating global oil market further complicates the situation. International petroleum product pricing is subject to considerable volatility influenced by various geopolitical and economic factors. Events in the Middle East, China’s market dynamics, seasonal variations, production status, and other global influences all contribute to this instability. While the foreign exchange rate has remained relatively stable, the landing cost, being intrinsically linked to these global factors, is susceptible to intra-day fluctuations. Marketers can potentially mitigate these fluctuations through strategic negotiations, access to foreign exchange, and logistical efficiencies, such as optimizing shipping procedures and handling larger cargo volumes.
Oil marketers, under the umbrella of the Independent Petroleum Marketers Association of Nigeria (IPMAN), are grappling with the unpredictable nature of these price reductions. While acknowledging the benefits to consumers, they highlight the significant financial strain caused by the constant price adjustments. The volatility makes it difficult to predict future prices, forcing marketers to reduce their purchases to minimize potential losses. This cautious approach could lead to supply disruptions if not addressed effectively. IPMAN has proposed a regulatory measure mandating price adjustments only every six months to provide some stability to the market, though the regulatory body’s decision on this proposal remains pending.
The current landscape of the Nigerian downstream oil sector presents a complex interplay of competing interests. The price war, while advantageous to consumers, poses a significant threat to the financial viability of oil marketers. The volatility of the global oil market, coupled with the competitive pressures within the domestic market, creates a challenging environment for all stakeholders. The proposed regulatory intervention to stabilize prices, if implemented, could potentially offer a more sustainable and predictable market for both marketers and consumers. The Dangote refinery’s recent reduction in diesel prices from N1,020 to N870 per litre further adds to the dynamic nature of the market and underscores the ongoing price competition.
