PETROL PRICE CUT WILL BOOST MARKETERS’ IMPORTS – REPORT
Research analysts at FBNQuest have said the reduction of petrol pump price by the Federal Government will bring about increased petrol importation activities by marketers. They noted that the announcement of a N20 reduction in the pump price had received mixed reactions across the country. The analysts said in a report, “For the petroleum industry, which will feel the wider impact, it has come as a big break for the downstream marketers in the country. “All marketers are now allowed to import petroleum products, ending the Nigerian National Petroleum Corporation monopoly.”
They said taking a deeper look at the recent announcement by the Ministry of Petroleum Resources, the policy gain “is subject to the government retaining a free market, by setting petrol pump prices in line with prevailing global oil prices.” The report said, “Despite this policy move, an immediate boost to product sale volumes in the first half of 2020 is not likely due to the impact of the global coronavirus pandemic, which will affect social, religious and economic activities in major cities such as Lagos.
“In context, there are indications that there will be increased petroleum importation activities by marketers.” According to the analysts, there are two options when the oil market rebound: either to continue with the price modulation or revert to the subsidy regime. They said, “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.
“Going strictly by the Federal Government’s statement, it could be inferred that we have seen the last of petrol subsidies. Nevertheless, we recall that a similar price modulation mechanism was introduced in 2016/17 when oil prices were also subdued. Subsidies were subsequently reinstated as prices increased.” The analysts said the government’s resolve to maintain the new market-driven pricing regime would likely not be tested as the expected market price for petrol could comfortably remain below the previous N145/litre pricing ceiling.
They said, “While there is hope that global efforts to control the spread of COVID-19 yield favourable results in the short term, the timing on a resolution (if ever) of the Russia-Saudi Arabia row is harder to call. “There are indications that OPEC+ might be irreparably broken which could potentially result in relatively lower oil prices beyond this year. The next OPEC meeting is scheduled to hold on June 9, 2020. Therefore, it is very likely that oil prices will remain subdued at around $30/barrel levels in H1 2020.”