Mixed Outlook for Petroleum Marketers

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Culled—Proshare

May 18, 2017/FBNQuest Research

On Tuesday the National Bureau of Statistics (NBS) released the latest report in its premium motor spirit (PMS) price watch series.

This shows the average monthly price for PMS (petrol/gasoline) paid by households across the country. In April it averaged N149.9/litre (l) for the 36 states of the federation and the FCT, and so above the fixed upper price limit for the retail pump price of N145/l set by the authorities.

The average price of gasoline in April represented a 0.3% m/m increase. Kebbi State had the highest price for PMS at N160.5/l while Abuja, Ekiti, Kaduna, Ogun and Osun had the lowest with N145/l.

In most states, PMS is generally sold above the upper limit set by the authorities. We assume this is as a result of petroleum marketers attempting to maintain reasonable profit margins.

Given the increased fx liquidity due to interventions by the CBN, the re-entrance of independent marketers is a possibility. Based on our estimates, petroleum products account for c.30% of Nigeria’s fx utilisation.

Additionally, a fall in international refined product prices this year has improved margins for the marketers in Nigeria.

Boosting local refining capacity would push the cost of petroleum products downwards. Nigeria’s current refining capacity utilisation is c.37%. The latest resuscitation of government-owned refineries is underway. Furthermore, the FGN has a plan to convert illegal refineries (particularly in the Niger Delta) into modular refineries.

Notwithstanding, increased local refining capacity does not automatically translate into healthier margins for petroleum marketers. Without genuine deregulation, pricing is subject to government policy.

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