Explanation! Causes of Slash Nigerian oil prices, the impact on the market

Due to imports of imports and increasing competition between fuel importers and recently to form a local refinery, the price of the Spirit of Premium Motors (PMS), also called gasoline, has experienced a significant decrease in Nigeria.

Nigeria has seen a surge in gasoline imports in recent months because dealers and marketers have increased shipping ahead of the expected refinery output. The domestic market is now over supply as a result of this surge, which reduces gas prices.

According to market observers, importers provide discounted prices in an effort to quickly sell merchandise to clean existing shares. A petroleum marketer observes, “There are too many offers to pursue limited demand. Everyone tries to sell before prices continue to decline.”

Development of local purification capacity, especially slow operations in Dangote Refinery, the largest in Africa, adds pressure to the price. The refinery is still in the initial phase of the operation, but his arrival has changed the dynamics of the local gasoline market.

In addition, smaller modular refineries began to make a small contribution to domestic production, reducing Nigeria’s old dependence on oil imports. Although currently limited, this local output makes the competition among the downstream sector players more ferocious.

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Impact on the market:

This development indicates the implications of positive FX, due to reduced fuel imports (due to local purification) means lower pressure on foreign exchange reserves and dollar demand.

If it is sustainable, this trend helps Nigeria maintain naira without excessive reserves, which will have an impact on her eurobond, because an increase in external balance strengthens the nigerian sovereign credit profile, which can reduce the default risk that is felt and causes narrower spread to Nigerian Eurobonds.

The current price decline, determined by market strength rather than subsidies, shows that the government holds fast to the deregulation policy.

On the other hand, the decline in Nigerian fuel prices recently- used by excess imports and growth of domestic purification- has a number of short and medium-term market effects that affect many industries.

Smaller or less effective marketers can be forced out, especially if the local refinery gets a price profit, and the downstream oil sector will suffer from margin compression for importers who have to sell gasoline at lower prices to clean up excess stock, which results in lower profit margins.

Local refineries will now face pressure from competition as a result of this development. Although refineries like dangote are anticipated to get long -term benefits, they are under pressure to offer competitive prices in the short term to compete with low -cost imported petroleum. This is especially true considering that, if the economy scale is realized, efficient local purification can ultimately take over the supply chain.

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