Nigeria’s fuel marketers are facing increasing challenges in importing and selling gasoline, as the naira continues to depreciate against the US dollar and the dollar gains strength ahead of a speech by the US Federal Reserve Chairman.
These factors have raised the possibility of gasoline prices rising at fuel stations, despite a slight drop in crude oil prices.
The Naira-Dollar Exchange Rate and Its Impact on Fuel Marketers
The naira has been losing value against the dollar on the parallel market, where most fuel marketers source their foreign exchange.
The naira fell to as low as 920 naira per dollar on Wednesday, compared to 800 naira per dollar in March, when the government announced the removal of fuel subsidy and the unification of the exchange rate.
This means that fuel marketers have to pay more naira to buy dollars to import gasoline, which is priced in dollars.
According to local oil traders, the cost of gasoline has increased from between 590 naira/liter and 617 naira/liter in March to between 680 naira/liter and 700 naira/liter in August, based on the current exchange rate.
However, the government has not allowed fuel marketers to increase their pump prices accordingly, as it tries to avoid public backlash and inflationary pressure.
The government has also instructed the Nigerian National Petroleum Corporation (NNPC) Limited to absorb the extra cost and maintain gasoline supply across the country.
This has put a strain on the finances of both NNPC and fuel marketers, as they have to bear the losses from selling gasoline below their import cost.
NNPC recently announced that it had secured a $3 billion loan from the African Export-Import Bank (Afreximbank) to support its operations and stabilize the foreign exchange market.
The Dollar-Crude Oil Price Dynamics and Their Impact on Fuel Marketers
Another factor that affects the cost of gasoline importation is the price of crude oil, which is Nigeria’s main source of foreign exchange.
Crude oil prices have been recovering from the slump caused by the COVID-19 pandemic, reaching a high of $77.2 per barrel in July 2023. This has boosted Nigeria’s foreign exchange reserves and fiscal revenues.
However, crude oil prices have also declined slightly in the past two weeks, due to various factors, such as easing supply concerns, and bearish sentiment. Crude oil prices are expected to fall by between 1.2% and 2.2% this week, marking the second consecutive week of losses.
While lower crude oil prices may reduce the cost of gasoline importation for fuel marketers, they also reduce Nigeria’s foreign exchange earnings and reserves, which may put more pressure on the naira. Moreover, lower crude oil prices may not translate into lower gasoline prices for consumers, as other factors, such as taxes, margins, and distribution costs, also affect the final pump price.
Another factor that affects both crude oil prices and gasoline importation costs is the strength of the US dollar, which is the global reserve currency and the main currency for oil trading. The dollar has been gaining strength in anticipation of a speech by US Federal Reserve Chairman Jerome Powell at the Jackson Hole symposium on Friday.
The speech is expected to provide clues on whether the Fed will start tapering its bond-buying program and raising interest rates sooner than expected, in response to rising inflation and economic recovery in the US. A stronger dollar makes crude oil more expensive for buyers using other currencies, such as the naira. It also makes gasoline importation more costly for fuel marketers who need dollars to pay for their shipments.
The dollar has reached a 10-week high against a basket of major currencies, recording its largest one-month gain. The dollar’s strength has been supported by positive US economic data, such as lower jobless claims and steady core durable goods orders. The dollar’s strength has also been boosted by higher expectations of a Fed rate hike in September, as indicated by Fed futures prices.
The Government’s Stance and Outlook
The government has reiterated its commitment to keeping gasoline prices stable and affordable for Nigerians, despite the rising costs faced by fuel marketers. The government has also assured Nigerians that there will be no shortage or scarcity of gasoline in the country.
President Bola Tinubu’s special adviser on communications and publicity, Ajuri Ngelale, told reporters at the State House last week that “the President wishes to assure the people of Nigeria, following the announcement made yesterday by NNPC Limited (Monday), that PMS pump prices will not increase anywhere in the country. We reiterate that the President has confirmed that he will not raise the price of PMS at the pumps.”
NNPC Limited also addressed widespread concerns last week about the possibility of gasoline prices rising at pump stations. The corporation said that it had enough stock of gasoline to last for over 40 days and that it was working with relevant stakeholders to ensure smooth supply and distribution of the product.
The government’s stance and outlook may provide some relief and stability for Nigerians, who are already facing high inflation and low income due to the exchange rate unification policy. However, the government’s stance and outlook may also pose some challenges and risks for the oil and gas sector, which is already facing regulatory uncertainty, security threats, environmental issues, and competition from other energy sources.
The government will have to balance the interests of the consumers, the fuel marketers, and the NNPC, while also aligning with the global trends and best practices in the oil and gas industry, such as reducing carbon emissions, enhancing corporate governance, and increasing social responsibility.
