The Dangote Petroleum Refinery’s decision to reduce the ex-depot price of Premium Motor Spirit (PMS) has sparked mixed reactions among petroleum marketers, many of whom now face significant financial losses.

On Saturday night, the refinery announced a price reduction from N950 to N890 per litre, a move it attributed to favorable global energy market conditions and a decline in crude oil prices. The company emphasized that the adjustment aligns with market realities and aims to pass the benefits of lower international crude oil prices to Nigerian consumers.

Mixed Reactions from Marketers

While the reduction is expected to bring relief to consumers, many marketers who purchased fuel at the earlier price of N950 per litre now stand to lose millions of naira. The Vice President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Hammed Fashola, acknowledged the benefits of the price cut but noted that it comes with significant downsides.

“If a marketer bought products at the previous rate, they have no choice but to reduce prices to stay competitive, incurring losses in the process. This is part of a deregulated market,” he said.

Marketers must now be more strategic in purchasing fuel, considering potential price fluctuations. Fashola stressed that competition dictates market behavior, forcing those with older stock to adjust prices accordingly.

Competitive Pressures Driving Price Changes

The recent price slash follows threats from fuel importers who argued that foreign PMS was becoming a cheaper alternative to locally refined products. Dangote Refinery’s decision to lower prices is seen as a response to this challenge, reinforcing the competitive nature of the deregulated fuel market.

“If imported PMS is cheaper, local refiners must adjust or risk losing customers. Dangote is simply reacting to market dynamics,” Fashola explained.

As a result of this competition, the Nigerian National Petroleum Company Limited (NNPCL) may also be compelled to lower its prices to remain viable. The National President of the Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), Billy Gillis-Harry, expressed optimism that other players in the market, including importers and local refiners, will follow suit.

Economic Implications

The price reduction is expected to have far-reaching economic effects, including lower transportation costs, reduced inflation, and increased disposable income for consumers. Businesses are also likely to benefit from decreased logistics expenses, potentially leading to overall economic growth.

However, the shift is not without its downsides. IPMAN’s National Publicity Secretary, Chinedu Ukadike, noted that similar price fluctuations in 2024, when Dangote entered the market and slashed diesel prices, resulted in heavy losses for marketers. Many traders, having secured bank loans for fuel purchases, are now wary of unpredictable price movements.

“Marketers fear lifting fuel because of price instability. They do not want to suffer collateral losses. No one compensates them when prices drop,” Ukadike emphasized.

Conclusion

While the Dangote Refinery’s price reduction is expected to benefit consumers and stimulate economic activity, marketers now face a challenging period of financial losses. The evolving fuel market dynamics highlight the realities of a deregulated system, where competition dictates pricing strategies. Industry stakeholders will be closely watching how NNPCL and other fuel suppliers respond to this latest development.