Petrol prices jump 15% in major cities as reality of market forces dawns

Petrol prices at the retail outlets of the national oil company located in Abuja jumped from N537 to N617 per litre on Tuesday, sending shock waves around the country as within minutes other outlets around the country adjusted their prices.

Many outlets benchmark the prices of their petroleum products with that of the Nigerian National Petroleum Company Limited. Shortly after, NNPCL adjusted its pump prices, prices shot up across other petrol stations.

Some outlets in Abuja jerked prices to N620 while in Lagos prices, the NNPCL retail outlet in Ikoyi was selling at N568/litre instead of N490. By noon in Abuja few outlets including A.A Rano was selling below N600 per litre around the country.

Nigerians are coming to terms with the reality of market forces. used to describe demand and supply, the influence of the price and availability of goods and services in a market economy, that is an economy with minimum government involvement.

Market forces push prices up when supply declines and demand rises, and drive them down when supply grows or demand contracts. But in Nigeria, things are usually more nuanced. These forces can sometimes be literal, like oil marketers colluding to exert their will on diesel prices, with government agencies looking away.

In this case, pressure from foreign exchange rates is making it impossible to keep prices stable. Petrol price export prices from Rotterdam, where Nigeria is supplied, have fallen from $856 per metric tonne to $859/MT, what has changed is the value of the naira.

At the time the prices were reviewed in May, NNPCL’s N488/litre was based on N630/$1, today, the exchange rate is N820/$1 or N825/$1 for transferred funds.

Mike Osatuyi, national operations controller of the Independent Marketers Association of Nigeria, IPMAN told BusinessDay that NNPCL cargoes landed yesterday and when they plugged it into the pricing template with the current exchange rate of the dollar to naira, it led to the increase.

“We are seeing deregulation in full force,” said Osatuyi “as marketers are now pricing their products based on market reality.”

Some analysts have expressed doubts over why a 10 percent devaluation of the naira will trigger a 15 percent rise in the price of the commodity.

Last month, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) issued licenses to half a dozen oil marketing companies to import products, breaking the monopoly held by the NNPCL because the government was subsidising the product.

Read also: Market forces have started to play – Kyari

BusinessDay findings show that at least two oil marketers, Prudent Energy and AY Ashafa, have brought products into the country, their cargoes arriving about the same time as that of the NNPCL.

This means that these oil marketers will compete on prices but with NNPCL’s superior distribution infrastructure, it is expected that the margins will remain tight.

“Even though some importers have been able to import the product, it cannot be cheap because it is based on the current market fundamentals, especially foreign exchange. The public should also know that importers source their foreign exchange from the banks at the current rate,” Osatuyi said.

Naira on Tuesday exchanged with the dollar at an average rate of N825 as demand intensifies in the parallel market.

This is the same rate it closed at on Monday in the same market segment. Naira on Monday weakened against the dollar by 0.48 percent, following increased demand for the greenback by end users.

At Investors and Exporters (I&E), Naira appreciated by 1.07 percent as the dollar was quoted at N795.28 on Monday compared to N803.90 quoted on Friday, data from the FMDQ showed.

Already the upsurge in petrol prices is affecting demand for the product as over 30 percent of demand has been shaved from national consumption figures since subsidy removal announcement was made on May 29.