Fuel pump price may rise in June as oil heads towards $40 per barrel

Tue, May 19, 2020
By publisher
5 MIN READ

Oil & Gas

IF the Federal Government’s pricing template is anything to go by, Nigerians may have to brace for an increase in the pump price of fuel as oil prices begin to head towards the $40 region, following countries’ eased lockdown measures, showing signs of gradual recovery in demand, supported by on-going output cuts effective May.

Yesterday afternoon, Brent crude hit $35.34 per barrel, U.S. West Texas Intermediate crude was up 7.44 per cent, to hit $31.62 a barrel, the highest in nine weeks or since March 16. Nigeria’s Bonny Light rose by 10.68 per cent to hit $29.84 per barrel.

Although the Federal Government failed to review the N123.5 to N125/litre pump price of petrol for May, despite continued crash of crude oil price, it may adjust the price for next month if oil prices rise above the $40 threshold.

The delay by the Petroleum Product Pricing Regulatory Agency (PPPRA), to review the price of Premium Motor Spirit (PMS), popularly known as petrol for May, also increase the profit margin of oil marketer to N15.5 per litre.

This is as a result of the recent slash in the ex-depot price of petrol by the Nigerian National Petroleum Corporation (NNPC) from N113.28/litre to N108/litre. That is the price at which the national oil company sells petrol to marketers.

With oil prices making a Fuel pump price may rise in June as oil heads towards $40rally, there are concerns for consumers and the real sector as industry observers had urged the Federal Government to make pronouncements that provide clarity on where, when, and how Nigeria would do away with petroleum subsidy.

The Federal Government said in March, that it had bowed to long-standing pressure to restructure the downstream oil sector and had therefore removed oil subsidy after the country was hit by lower oil prices which placed more pressure on its foreign exchange reserves.

Precisely, the Lagos Chamber of Commerce and Industry (LCCI), and Transparency International (TI), among others, asked the presidency to clarify terms for the subsidy removal.

The pressure groups, also questioned the resolve of the NNPC on the subsidy, expressing worry on which legal regime “is this declaration made enforceable since the Petroleum Industries’ Bill (PIB) is not in-sight anytime soon.”

The Muhammadu Buhari administration had removed the petrol price peg of N145/litre to N125 in March, the first time the price would be adjusted since it was reviewed in 2016, from N86 per litre to N145 since his assumption of office.

With no new template for the month of May, the PPPRA had stated that the cost of petrol would be reviewed monthly in accordance with the fluctuation of crude oil price in the international market.

“What we have in place is a market reflective pricing system. Petroleum products prices will be adjusted in line with market realities and the result is what we see presently with prices on the downward slide,” the PPPRA’s Executive Secretary, Abdulkadir Saidu, said recently.
Saidu added, “Accordingly, price will naturally be adjusted to reflect a true picture of market fundamentals at any particular period, high or low.”

The Federal Executive Council last week, approved the revised 2020 budget with new benchmarks, which now include $25 per oil barrel, and a target production rate of 1.94 million barrels per day and then an exchange rate of N360 to $1. Finance Minister Zainab Ahmed, said the revised budget now amounts to N10.5trillion, a difference of about N71.5billion when compared to the initial approved budget.

“This is because, as we cut down the size of the budget,” she noted, “we also have to bring in new expenditure previously not budgeted, to enable us adequately respond to the COVID-19 pandemic.

The imminent expiration of the June WTI futures contract on 19 May (today), also led to a significantly lower number of contracts being traded. The volume of trade for the June contract was just 1,790 in early Asian trading compared with 32,755 for the July contract.Production is also falling as U.S. energy firms cut the number of oil and natural gas rigs operating to an all-time low for a second consecutive week. That partly helped ease concerns about the WTI contract’s delivery point in Cushing, Oklahoma, running out of space.

Prices have increased amid tighter supplies. US oil services firm Baker Hughes said that the country’s drilling rig count fell by 35 to 339 last week, adding to a record low as crude prices remain too depressed for most operators to maintain stable drilling plans.

The Chicago Mercantile Exchange, which hosts trading in WTI futures, brokerages and the United States Oil Fund LP, the largest oil-focused exchange-traded product in the country, have all taken steps that reduced open positions ahead of the WTI contract’s expiry. The positive mood was reinforced as U.S. Federal Reserve Chairman, Jerome Powell, issued an optimistic outlook for economic recovery later this year.

“Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year,” Powell said Sunday night in broadcast remarks.

Also supporting oil prices are production cuts by the Organization of the Petroleum Exporting Countries, OPEC, and its allies, including Russia, a grouping known as OPEC+.

The world’s top exporter Saudi Arabia announced last week that it would cut an additional 1 million barrels per day in June, while OPEC+ wants to maintain existing oil cuts beyond June when the group is next due to meet. Kuwait and Saudi Arabia have agreed to halt oil production from the joint Al-Khafji field for one month, starting from June 1, Kuwait’s Al Rai newspaper reported on Saturday.

Guardian

– May 19, 2020 @ 15:10 GMT /

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