FUEL SCARCITY

 FUEL SCARCITY….

Nigerians in the last two weeks have witnessed reemergence of fuel queues at filling stations and persistent increase in prices mof petrol across the country with some buying a liter of Premium Motor Spirit (PMS) at over N1,000. This has caused panic buying as a result of unavailability of the product in the market. 

I took time to analyze the situation and also consulted some big name oil marketers I know to have a holistic understanding of the situation and below are my findings; 

1. Cut in supply chain during the dollar ($) surge: Between Feb-March, there was an unprecedented surge in the price of dollar, going up to about N1,900-$. It’s also a knowledge that PMS is an imported commodity that is also based in dollar. The importers halted placing order for a particular period due to the surge to avoid making losses before the delivery of the order. 

It’s also a known knowledge that government is paying partial subsidy for the product to be sold at the current pump rate. And at landing cost of about $1/liter, the government can not afford to subsidize the product at the rate of the dollar during the surge. Hence, the reason for the cut in supply. 

I also learnt that there are already ships laden with the product en route to Nigeria and are due to arrive our port terminals in few days.  This will bridge the supply gap and ensure availability of the product across the country. 

2. Dangote Refinery: Marketers are unsure of what will happen when the refinery starts supplying the local market. We have seen an example with the diesel price. When you have imported diesel in your tank farm/deport at say N1,400/ liter and Dangote starts supplying at N940/liter, that’s a huge loss. Marketers are trying to avoid such scenario and are reserved until they see what unfolds. 

Dangote is expected to start supplying the domestic market next month and is likely to come at lower price than the current market price. 

3. It’s actually a norm in economics to have price surge due to scarcity resulting from cut in supply as well as speculation and uncertainty. 

4. Things will normalize once we have enough supply.