• Explains why it hiked fuel price again

Sopuruchi Onwuka

Indigenous transportation fuel producer, Dangote Refinery, which increased the price of petrol by N100 per liter to about N939 per liter has indicated possibility of further price hike, pointing at fears of sustained increase in the price of crude oil.

The company had on Tuesday morning promptly increased retail price of petrol by N100 from N839 per liter to N939 per liter promptly as crude oil price reached $80 per barrel.

The price hike, which would be the second in the year, brings total increase in the price of petrol to about N200 per liter from the December price of N739 per liter, as the local refiner benchmarked local prices against the cost of imported options.

But crude oil prices are not the sole factor in determining the price of refinery outputs, explaining why prices of global fuel products remain at stable levels until rise in prices of crude oil sustain across a length of time.

Crude oil prices are sold in futures contracts at prices that are binding on refiners and offtakers. Prices however fluctuate with spot market forces, but such price movements do not immediately reflect in market-ready fuel products in competitive markets.

Checks on price of petrol in Europe, for instance, has remained stable even when supply concerns remain very high following disruption in supply logistics associated with the war in Iran.

But Dangote has always increased price of products as soon as there are indications of rise in the price of crude oil. And in explaining the latest increase in prices, Dangote pointed at sharp rise in the price of crude oil on Monday evening.

“Brent prices rising by about 26% within a short period to above $84.0 per barrel. In response, the refinery implemented a measured adjustment of N100 per liter in its ex-depot price of Premium Motor Spirit, representing an increase of about 12%,” the company declared in a statement.

Dangote Petroleum Refinery & Petrochemicals noted that the conflict in the Middle East has led to the shutdown of some refineries and cut in refinery production across the world, leading to a global scarcity of petroleum products.

Oracle Intelligence could not confirm scarcity of petrol in the international market even though there are strong sentiments over supply of crude oil following developments in the Middle East where ongoing Iran war has caused shipping constraints along the Strait of Hormuz.

Dangote which processes Nigerian crude oil locally in Lagos blamed international supply concerns on China for banning export of gasoline and diesel, an explanation that is totally unrelated to Nigeria’s local supply cost templates.

China is a major buyer of crude oil around the world because it hosts some of the largest refining plants in the planet. The country exports part of its refined fuel products to energy poor countries via long voyages that build costs on tanker charter, insurance, sundry risk premiums, product evaporation and port charges.

In contrast, Dangote secures its feedstock from the Nigerian National Petroleum Company (NNPC) Limited under the government’s domestic crude supply obligation and Naira for crude policy. Both privileges were conceived to shield Nigerians from international price shocks and guarantee low fuel prices in the domestic market.

Dangote however stated that the domestic crude supply obligation and Naira for crude policies have not worked, blaming the NNPC Limited for undersupplying it with feedstock and compelling it to augment feedstock in dollars denominated transactions at the international market.

The company promised Nigerians supply stability even at high cost, saying “this is one of the many benefits of domestic refining.”

The company also indicated possible further increase in prices, noting that the conflict in Iran has driven global crude and freight prices sharply higher.

“The refinery has absorbed 20% of the cost escalation, for now, to cushion the domestic market. This is despite continuing to source crude at prevailing international market prices, whether purchased locally or from foreign suppliers,” it indicated in the statement.

In presenting cost templates, Dangote Refinery said crude oil price increased from $68 per barrel when it sold petrol N774 per liter; adding that it would now start buying crude oil at a range between $88 and $91 per barrel.

“Furthermore, while we receive about five cargoes a month from NNPC which we pay for in Naira, these cargoes are priced at international market prices + Premium and fall short of the 13 cargoes which we require to support sales into Nigeria.

“We therefore end up procuring foreign exchange at open market rates to pay for crude cargoes purchased from local and international traders.

“The high crude cost is compounded by the fact that Nigeria upstream producers have failed to supply crude oil to the refinery as required under the PIA, forcing us to source a substantial portion through international traders who charge an additional premium,” the company narrated.

A Managing Director of an indigenous exploration and production company contacted by Oracle Intelligence explained that Dangote Refinery has yet to enter a binding supply contract for crude supply.