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N125/litre: Immediate boost to sales volume unlikely –FBNQuest

30th March 2020
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N125/litre: Immediate boost to sales volume unlikely –FBNQuest
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FBNQuest Research has revealed that despite a downward review in fuel price from N145 per litre to N125 by the Federal Government, an immediate boost to product sales volumes in the first half(H1) of 2020 is not likely.

The report is contained in a research outcome by FBNQuest titled ‘‘Nigerian Gasoline Price Review to N125 and the Pursuit of Fuel Subsidy Removal’’ made available to Daily Sun in Lagos at the weekend.

The FBNQuest report hinged the failure of the downstream petroleum industry to witness an immediate boost in sales volume to the impact of the global coronavirus pandemic, which will affect social, religious and economic activities in major cities such as Lagos. It added that taking a deeper look at the recent announcement by the Ministry of Petroleum Resources, the policy gains is subject to the government retaining a free market, by setting gasoline pump prices in line with prevailing global oil prices.

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‘‘The announcement of a N20 reduction in the price of Petroleum Motor Spirit, PMS has received mixed reactions across the country. For the petroleum industry which will feel the wider impact, it has come as a big break for the downstream marketers in the country.

In context there are indications that there will be increased petroleum importation activities by marketers, following the recent official figures that show Lagos accounting for 20 per cent and 55 per cent of national gasoline consumption respectively in the country.

This is why the Federal Government will have to make a bold decision when the global economy restarts and oil markets strengthen. There are two options which are; either to continue with the price modulation or revert to the subsidy regime.’’

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The report noted that it is understandable that the government’s new found flexibility is driven by rapidly declining global oil prices resulting from the health pandemic and an ongoing dispute between two of the world’s largest oil producers Russia and Saudi Arabia.

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‘‘Going strictly by the FG’s statement, it could be inferred that we have seen the last of gasoline subsidies. Nevertheless, we recall that a similar price modulation mechanism was introduced in 2016/2017 when oil prices were also subdued. Subsidies were subsequently re-instated as prices increased.’’

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The FBNQuest report, added further that the key takeaways from the structural adjustments to the gasoline price are; market forces will henceforth determine the price of all petroleum products; pricing bands will be determined by the Petroleum Products Pricing Regulatory Agency (PPPRA) and will be disclosed every two weeks and  all marketers are now allowed to import petroleum products, ending the Nigerian National Petroleum Corporation (NNPC’s) monopoly.

The research report argued that while there is hope that global efforts to control the spread of COVID-19 yield favorable results in the short term, the timing on a resolution (if ever) of the Russia-Saudi Arabia row is harder to call.

It maintained that there are indications that OPEC+ might be irreparably broken which could potentially result in relatively lower oil prices beyond this year, adding that the next OPEC meeting is scheduled to hold on the June 9, 2020, where it is very likely that oil prices will remain subdued at around $30/barrel levels in H1 2020.

‘‘Under this scenario, the FG’s resolve to maintain the newly introduced market-driven pricing regime will likely not be tested as the expected market price for gasoline should comfortably remain below the previous N145/ pricing ceiling, all things being equal. It is also important to note that the present situation could change quickly and as such to not totally write off the possibility of an emergency OPEC+ meeting before June, 2020.

Rapheal

Rapheal

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