Rapid Petrol Price Increases: London Group Rubbishes Dangote’s Claims

Dangote Petroleum Refinery’s three petrol price increases in nine days have raised questions over the refinery’s explanation that the adjustments reflected the cost of crude oil purchased weeks earlier, according to London-based EBC Financial Group.

EBC said the timing and size of the increases did not appear to fully match the explanation, a development it said could be relevant to investors ahead of Dangote’s reported stock market listing.

David Precious, Senior Market Analyst at EBC Financial Group, said an explanation based on stored crude costs would ordinarily be expected to correspond with the timing and cost of the crude entering production.

“Instead, Nigeria saw three increases of different sizes, N20, then N15, then N65, across nine days, growing larger each time,” Precious said.

He added that the two largest increases occurred while the international crude price was still falling.

“That does not make the explanation false; it has yet to account for the timing or the size of the increases,” Precious said.

Between August 21 and 29, Dangote increased its ex-gantry petrol price from N1,165 to N1,185, then N1,200 and finally N1,265 per litre, representing a cumulative N100, or about 8.6 per cent, increase.

The refinery’s coastal price also rose during the period, while the Nigerian National Petroleum Company Limited (NNPC) subsequently increased its pump price in Abuja by N20 to N1,270 per litre.

The price Increases came as Brent crude fell from about $95 per barrel on August 21 to around $86 by August 26, according to the statement.

EBC said this raised questions about the timing of the increases, particularly the N65 adjustment, which took effect before Brent recovered above $90.

“Brent did not climb back above $90 until Monday, 31 August, two days after the N65 increase took effect,” the statement said.

The refinery has maintained that its prices reflect the cost of crude already purchased and delivered for processing, rather than the prevailing international spot price.

EBC acknowledged that crude bought at a higher price can take weeks to move through negotiation, loading, shipping and discharge, meaning a subsequent fall in international prices would not immediately reduce the cost of crude already held by a refinery.

However, the firm said the recent sequence of price adjustments did not fully resolve the question.

The statement also cited a 27 August Energy Bulletin by the Major Energies Marketers Association of Nigeria, which placed Dangote’s gantry price at N1,200 against an estimated spot import-parity price of N1,222.32.

Two days later, Dangote’s price had risen to N1,265, about N43 above the earlier import-parity reference.

EBC said the comparison should not be treated as proof that Dangote’s latest price was excessive, noting that there was no live published benchmark showing whether the import-parity figure had changed during the two-day period.

The firm also pointed to the response of marketers to Dangote’s price changes.

Chinedu Ukadike, national publicity secretary of the Independent Petroleum Marketers Association of Nigeria (IPMAN), said retailers had little choice but to adjust their pump prices when their own costs increased.

EBC aid this did not establish coordination between suppliers but demonstrated how quickly changes in refinery and replacement costs could pass through to consumers.

The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) also identified crude sourcing, domestic refinery supply, refinery delivery timelines, logistics and transportation costs among factors contributing to petrol-price volatility.

Meanwhile, Dangote separately increased its ex-gantry Automotive Gas Oil (diesel) price from N1,750 to N1,850 per litre on September 4.

EBC said greater disclosure of the cost behind individual price adjustments could help resolve questions surrounding the refinery’s pricing.

“A single published cost breakdown per adjustment” showing the crude cargo involved, purchase date, purchase price and discharge date would allow marketers, regulators and investors to independently assess the basis for future price changes, the firm said.

[News Express]