Pricing Template Suggests Petrol Worth over ₦200/Litre - CardinalStone

Pricing Template Suggests Petrol Worth over ₦200/Litre – CardinalStone

With liberalisation of the downstream oil sector, pump price of petrol motor spirit at average of ₦162.60 appears to have fell behind landing cost of ₦200/litre as per current pricing template.

This would mean under recovery, a case that often result to oil subsidy payment by the Nigerian government.

In a new report, Cardinalstone Partner Limited said the current pricing template suggests that price of PMS could be worth over ₦200 per litre upon adjustments.

Based on today’s market price, it appears that the Federal government has again started to subsidize petrol, though adjustment to price is expected.

Pump price of PMS has stayed at ₦162.50 despite increase in global prices as oil cartel and allies wield influence by adjusting production volume.

Analysts said the liberalization of the downstream oil and gas sector has introduced more volatility to fuel costs, which should track movements in global crude oil prices and other key variables.

The most recent hike in PMS prices to between N168-170 per litre in November marks the fourth increase in PMS prices since June, and higher projections for crude prices suggest that pressures on this front may subsist in the near term.

It was noted that higher energy costs and legacy issues counteracted the price-moderating impact of the harvest season.

This left legroom for sustained inflationary pressure in the last months of the year.

While upward adjustment to price petrol is economically correct, it appears it would add to political pressure facing the current administration.

Already, the macroeconomics condition in Nigeria is not favourable to individuals and businesses aftermath of the lockdown and ongoing social distancing due from the outbreak of Covid-19.

Key economic indices are weak, analysts said having noted that fuel price hike will stoke inflation pressure and push misery index.

Following a 17-months uptrend, the investment firm believe that PMS price could be a critical inflation driver in 2021.

“In line with our forecast, Nigeria’s headline inflation accelerated 71bps to 16.47% year on year in January 2021”, it added.

Notably, food inflation surged to 20.57% year on year, the highest reading in over 12 years, as analysts think the re-opening of land borders may have contributed to temperance in month-on-month reading.

NBS data shows that core inflation also accelerated 48bps from December 2020 to 11.85% year on year in January 2021.

Meanwhile, on a month-on-month basis, headline inflation rose by 1.49% in the review month compared to 1.61% reported in December on relatively tempered food reading of 1.83% as against 2.05% in the prior month.

Cardinalstone said the moderation in food inflation may have simultaneously offset the 1.26% -1.10% previously- month-on-month core inflation in the review month.

“Our 2021 outlook report highlighted the tripod of higher electricity tariff, potential naira devaluation, and PMS price increases as the biggest threats to inflation in the current year.

“The duo of higher electricity tariff and currency pressures (especially at the parallel markets) are already beginning to take a toll on domestic prices, in our view.

“However, a material increase in PMS prices could take inflation numbers to more worrying territories”, Cardinalstone explained

“To our minds, the decision to raise fuel prices may be a matter of “when” and not “if” as crude oil prices continue the ascendency observed since the turn of the year”, it added.

The rise in crude oil prices from about $40 in November 2020 to over $60/bbl in February 2021 has had a knock-on effect on landing costs.

Specifically, landing costs have risen from N123.89/litre in October 2020 to about N151.70 in February 2021.

The change in other direct cost elements also suggests that domestic pump prices should be about ₦205/litre, a far cry from the current ₦162.50/litre that suggests an inadvertent return to subsidies.

Nigeria: Worry as Prices of Food Items, Others Rise Steadily

Analysts said it either government is subsiding PMS or expected adjustment would be drastic.

Pricing Template Suggests Petrol Worth over ₦200/Litre – CardinalStone