FX squeeze on oil marketers may ease – experts

Oil and gas industry experts say the new foreign exchange (FX) guidelines released by the Central Bank of Nigeria (CBN) may ease pressure currently experienced by oil marketers.

“Based on our estimates, the current fuel price can accommodate dollar prices up to N285. Thus if the exchange rate settles above this price, we might see a situation where fuel marketers start to ask for higher fuel prices. But on the flip side, if they settle lower, then the market will profit from it and move on. We might even see more investment in the downstream market,” said Dolapo Oni, Ecobank head of energy research.

He added, “Ultimately I think the onus is now on the Petroleum ministry to follow the example of the CBN and also fully deregulate the petroleum market and let marketers set prices. This will encourage investments in the market and boost supply.”

Chijioke Mama, energy analysts shares the same view but sounds a note of caution. “The full impacts of the new policy will unfold in the coming weeks but there are some detours in it such as the promise to allocate dollars at a fixed rate to industries the government deems strategic.”

He further said, “If the petroleum downstream is included, (and it should), then the effects may be minimal, otherwise, we know that importation of petroleum products is already stifled by forex scarcity and higher exchange rates; if this trend continues it may become tough for importers to secure forex and even tougher to make profit at the N145 per liter price ceiling of PMS.”

Constraint in getting foreign exchange had set in a survival of the fittest struggle in the downstream sector of the petroleum industry.

While the major oil marketers are securing forex through affiliation with their International Oil Company (IOC) partners, independent oil marketers who have no such arrangements struggle to get foreign exchange at the parallel market where rates are as high as N350/$1.

Ibe Kachikwu on May 11, while announcing the liberalization of the petroleum downstream sector had used an exchange rate of N285$1 to arrive at a price ceiling of N145.

“Government said they base the cap on PMS at N285/$1, if I get it at N350/$1 are you expecting me to sell my product at N145? That’s why we are saying we need foreign exchange, we are trying to be creative in sourcing for forex, we are speaking with probable financiers but for us to be able to sell within the band provided by the government, we must be able to source at the same rate the government was able to source it,” said Olufemi Adewole, executive secretary of Depot and Petroleum Products Marketers Association of Nigeria (DPPMAN).

When he was contacted today, Adewole said he will need to fully study the document and discuss with his team before they take a position.