The crude oil price hit $76 per barrel, petrol market price soared to N256 per litre, while subsidy peaked at N5.46 billion daily last week. ADEOLA YUSUF, who takes a look at this triangle, reports the impact Nigeria’s battle on oil industry’s financial issues resulting from these could have on the economy
The standard market price for premium motor spirit (PMS) also known as petrol, last weekend, soared to N256 per litre. The product still sells at the regulated price of N165 per litre and this pushes subsidy on it to N91 per litre.
Controller of Operations, Independent Petroleum Marketers Association of Nigeria (IPMAN), Mike Osatuyi, who disclosed this to , maintained that this, caused by high crude oil prices, had made subsidy on the product to skyrocket. Crude oil prices have been steadied at around $76 per barrel since last Wednesday and data showed that subsidy on petrol has increased to N150 billion per day.
A $76pb crude price
Oil prices rose on Wednesday, with Brent climbing above $76 a barrel to its highest since late 2018. This came after data showed U.S. crude inventories declined as travel picks up.
U.S. crude inventories fell by 7.6 million barrels last week to 459.1 million barrels, the U.S. Energy Information Administration said, a much steeper drawdown than the 3.9 million barrels that analysts had expected in a Reuters poll. Stockpiles at Cushing, Oklahoma, the delivery point for U.S. crude futures, fell by 1.8 million barrels to the lowest since March 2020. Gasoline demand also edged higher last week.
“People are getting back in their cars again and that’s showing up in the numbers in a big way. That’s going to keep the upward pressure on prices,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. Brent crude rose 38 cents or 0.5 per cent, to end the session at $75.19 a barrel.Its session high, $76.02 after the EIA data, was the highest since October 2018. U.S. West Texas Intermediate added 23 cents or 0.3 per cent, to settle at $73.08 after hitting $74.25, also the highest since October 2018.
What led to what
A retreat in the U.S. dollar has also boosted the price of crude, making it less expensive for buyers holding other currencies.
“The inventory relief could provide another reason for the OPEC+ alliance to boost production further from August, and the coming meeting, next week, is expected to be material for policy and prices going forward,” said Rystad Energy’s oil markets analyst, Louise Dickson.
Brent has gained over 45 per cent this year, supported by supply cuts led by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) and as easing coronavirus restrictions boost demand. Some industry executives are talking of crude returning to $100 for the first time since 2014.
“Underlying demand in the physical market means that any corrections lower will remain shallow and short,” said Jeffrey Halley, analyst at brokerage OANDA. OPEC+, which meets on July 1, has been discussing a further unwinding of last year’s record output cuts from August, but no decision has been made, two OPEC+ sources said on Tuesday.
Global demand is set to rise further in the second half of the year, though OPEC+ also faces the prospect of rising Iranian supply if talks with world powers lead to a revival of Tehran’s 2015 nuclear deal.
Iran said on Wednesday the United States had agreed to remove all sanctions on Iranian oil and shipping, although Germany cautioned that major issues remained at talks to revive the deal. “If indeed sanctions get lifted and Iran is free to boost production and exports, this may cause a price reaction, but still the growing demand will absorb the extra barrels and prices will not experience any major shock,” Dickson said.
Implication on petrol
“Already, the price of PMS (petrol) has hit between N254 and N256 per litre as against the official regulated price of N165 per litre,” Osatuyi said. “The landing cost of PMS is also heading towards N300 per litre if this crude price remain at that level,” he added.
This means subsidy on the petrol would also go up. Using the daily petrol consumption data of 69 million litre, the N91 per litre subsidy will amount to N5.46 billion in one day.
The upward movement of crude oil prices happened after government supply-demand data showed not only the lowest U.S. crude stockpiles prior to the COVID-19 outbreak, but also a huge surprising drawdown in gasoline that attested to a strong run-up to summer driving. Nigeria currently depends solely on importation of refined product as her refineries are not working.
With price going as high as $76 per barrel it means the price of refined products would also move up since the price of crude influences the price of refined products.
Tightening noose on oil corruption
The Nigerian National Petroleum Corporation (NNPC) is collaborating with the Economic and Financial Crimes Commission (EFCC), Department of State Services (DSS), Nigeria Police Force (NPF), Nigeria Customs Service (NCS), Nigeria Security and Civil Defence Corps (NSCDC) and other relevant downstream and upstream stakeholders in the petroleum industry to curb the twin menace of petroleum products’ smuggling and crude oil theft, which are negatively impacting the nation’s economy.
Speaking at a stakeholders’ meeting at NNPC Towers, Abuja, the Group Managing Director of NNPC, Mallam Mele Kyari, said the move was at the instance of President Muhammadu Buhari, who mandated the Ministry of Petroleum Resources, NNPC, EFCC and all other security agencies to do everything to stop crude oil theft and illicit truck-out of petroleum products, which he described as major economic crimes that have hindered Nigerians from enjoying the benefit of subsidised petroleum products.
He urged all industry stakeholders to collaborate with the Corporation to ensure that the daily national petroleum products consumptionn, which shot up to 102 million litres in the month of May is brought down to realistic levels around 60 million litres, stressing that it was obvious to all that that volume of premium motor spirit (PMS) was not consumed by Nigerians alone.
“We all agree that smuggling is not a business that should be condoned because even for deregulated petroleum products it brings extra cost burden on this country both in terms of safety and security of supply and in securing of foreign exchange.
“It even constitutes more burden to this country when the product involved is a regulated product like Premium Motor Spirit (PMS),” Mallam Kyari submitted.
The GMD explained that with the increasing price of crude oil at the global market and the OPEC+ production cuts, the country cannot afford to shoulder the cost of smuggling. “We all know that our daily consumption is not up to 60 million litres. We all know that, and that is why we have to pull it down. We will pull it down by every means necessary,” Kyari assured.
He said NNPC would emplace Advanced Cargo Declaration in line with global best practices to tackle the issue of crude oil theft in the country. Speaking in a similar vein, the Chairman of EFCC, Abdulrasheed Bawa, expressed readiness of the Commission to work with NNPC to ensure that all those involved in the economic sabotage were brought to book.
The Major Marketers Association of Nigeria (MOMAN), Depot and Petroleum Products Marketers Association of Nigeria (DAPPMA), Independent Petroleum Marketers Association of Nigeria (IPMAN), Nigerian Association of Road Transport Owners (NARTO), Petroleum Tanker Drivers (PTD) and all the other stakeholders also expressed readiness to partner NNPC to bring an end to petroleum products smuggling.
The prices of crude oil is not solely in the hands of Nigeria, though the price of refined products can still be controlled if the country addresses its gross local refining inefficiency.
The on-going efforts at cleansing the downstream subsector of corruption is commendable. However, all hands must be on the deck to see this to a logical end.