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Analysts call for full deregulation of downstream sector

By on April 3, 2015

Analysts at BGL Research and Intelligence have stressed the need for the full deregulation of the downstream oil sector amid the decline in global oil prices.

They said the failure to take advantage of the reduction in oil prices to deregulate and the choice to reduce the pump price of Premium Motor Spirit (petrol) also created market uncertainties that were arguably responsible for the sudden scarcity of products in major cities in Nigeria in recent times.

Fortunately, increasing number of Nigerians appears to favour the deregulation as long as product supply is stable, according to BGL.

The analysts including the Head, Research and Intelligence, Mr. Femi Ademola, in a report, said, “We retain our opinion that the option for a full deregulation of the downstream oil sector is still relevant at this time.

“While we suspect that political expediency would make this an unattractive option by the government at this electioneering period, a post-election implementation would be appropriate. At that time, the government could utilise its participation power in the market through the NNPC importation and retail distribution capacity to support price volatility.”

The BGL analysts said with the arguably populist reduction in the pump price to a lower peg of N87 per litre in January, the reversal in crude oil price and exchange rate depreciation had materialised to jolt the Nigerian economy and the government out of its peace.

They noted that oil price reversed the precipitated decline from $48.31 per barrel on January 19 to about $60 per barrel in the first week of March, 2015.

“We recall that at the crude oil price of $48.31 per barrel on January 19, the associated price of the Nigeria referenced imported gasoline (refined PMS) of North West Europe Platt oil cargoes was $462.52 per metric tonne. By March 3, 2015, the quote for the same product had risen to $627.976 per metric tonne; an increase of 35.77 per cent.

“In addition, the naira exchange rate has depreciated to N200 per $1 from N168 per $ and N189 at the official and interbank market respectively on January 19; resulting in the closure of the official exchange rate window by the CBN in the bid to manage precipitated decline of the foreign exchange reserves.”

The analysts said the effect of the above twin factors was an expansion in subsidy per litre, adding that the N240bn budgeted for petroleum subsidy in 2015 would remain inadequate for that purpose if oil price stabilise at price above $60 per barrel and exchange rate at above N176 to a dollar.

 

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