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Analyzing the 37.4% Landing Cost Rise

Analyzing the 37.4% Landing Cost Rise
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Marketers Blame Sustained Rise in Crude Oil Price and Exchange Rate: The Impact on Petrol Prices

Analyzing the 37.4% Landing Cost Rise

In a volatile global economy, the pump price of petrol has become a topic of concern for both consumers and experts alike. The past few months have witnessed a sustained rise in the crude oil price and exchange rate, leading to strong indications that the pump price of petrol is poised for another round of increases. This would mark the third increase in just 10 weeks, exacerbating the financial burden on consumers and posing challenges to the economy at large.

Understanding the Surge: The Numbers Behind the Rise

Analyzing the 37.4% Landing Cost Rise

As of July 2023, the landing cost of petrol, excluding additional charges such as transportation logistics, deport related fees, and marketers’ margins, has surged by a staggering 37.4 percent MoM to reach N632.17 per litre. This is a significant increase from N460 per litre in the preceding month of June 2023. Such a substantial jump in landing cost is a direct consequence of several interconnected factors that have been brewing for months.

The Role of Foreign Exchange and Exchange Rate

Analyzing the 37.4% Landing Cost Rise

Foreign exchange has emerged as a pivotal factor in the rise of petrol prices. The scarcity of foreign exchange, coupled with the continuous deterioration of the exchange rate, has placed immense pressure on the petroleum sector. Over a single weekend, the Naira experienced a depreciation of about 6.5 percent in the official market and a staggering 25 percent in the parallel market, following the previous pump price increase.

The Global Crude Oil Market Impact

Analyzing the 37.4% Landing Cost Rise

The cost of fuel importation is intrinsically linked to the global price of crude oil. With recent surges in the international crude oil market, the cost of importing fuel has risen accordingly. An analysis of a major operator’s transactions revealed that the total direct cost per litre was N604.14, encompassing various components like product cost, freight charges, port fees, and other related expenses. A detailed breakdown of these costs is essential for a comprehensive understanding of the pricing structure.

  • Product Cost per Liter: N578.46
  • Freight (Lome-Lagos): N10.37
  • Port Charges: N7.37
  • NMDPRA Levy: N4.47
  • Storage Cost: N2.58
  • Marine Insurance Cost: N0.47
  • Fendering Cost: N0.36
  • “Others”: N0.05
  • Finance Cost: N28.04

A startling revelation from the analysis is that the landing cost for 28,000 metric tons of imported petrol exceeds $25 million, contributing to a sales revenue of over N22 billion. This juxtaposition highlights a substantial loss of over N1.6 billion, signaling the dire financial predicament faced by marketers.

Nigeria’s Crude Oil Output and Its Ripple Effect

Analyzing the 37.4% Landing Cost Rise

The dwindling output of Nigeria’s crude oil industry compounds the challenges faced by the petroleum sector. According to the Organisation of Petroleum Exporting Countries (OPEC), Nigeria’s oil production dropped by 6.5 percent YoY to 1.26 million barrels per day in July 2023. This represents a decline from 1.2 million bpd in the corresponding period of 2022. The continuous decline in crude oil output restricts the nation’s capacity to import refined products, creating a ripple effect that influences petrol prices.

Expert Opinions: Insight and Analysis

Analyzing the 37.4% Landing Cost Rise

Experts in the field have offered valuable insights into the situation. Mike Osatuyi, the National Operations Controller of the Independent Petroleum Marketers Association of Nigeria (IPMAN), acknowledges the revenue potential for the federal government due to high crude oil prices. However, he emphasizes that Nigerians will have to pay more for fuel as the prices have been deregulated. While the prices are currently high, he remains optimistic that market competition might lead to future price reductions.

Navigating Market Volatility and Discouragement

Analyzing the 37.4% Landing Cost Rise

The Managing Director of a major operator points out that the instability and volatility within the downstream sector have not only discouraged importation but have also hindered the anticipated massive investments in a deregulated market. The call for intervention, particularly in the management of foreign exchange, has gained traction as stakeholders look to stabilize the situation.

Argus’ Insight: Market Trends and Outlook

Analyzing the 37.4% Landing Cost Rise

Market intelligence from Argus, a United Kingdom-based entity, sheds light on the situation’s future trajectory. The recent upward trend in Nigerian crude values is attributed to steady demand from Europe. Despite challenges posed by high crude prices and Naira depreciation, the necessity of gasoline imports remains intact. European oil traders continue to seek coverage for supply, albeit potentially redirecting volumes to other parts of West Africa.

Conclusion: Navigating Unprecedented Challenges

Analyzing the 37.4% Landing Cost Rise

In conclusion, the sustained rise in crude oil prices and exchange rates has triggered a series of challenges that reverberate throughout Nigeria’s economy. The pump price of petrol, a critical component of daily life and economic activities, is inextricably linked to these global and domestic factors. As the Nigerian government grapples with the complexities of balancing revenue generation and consumer welfare, it remains imperative to closely monitor market trends, exchange rates, and global oil prices to make informed decisions.

With a keen understanding of the intricate web of factors influencing petrol prices, stakeholders can better navigate the stormy seas of market volatility. Only through proactive measures, well-informed policies, and collaborative efforts can the nation find its footing amidst these unprecedented challenges.

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