February 23, 2023/United Capital Update

Earlier this week, the National Bureau of Statistics (NBS) released the Premium Motor Spirit (PMS) price watch data for Jan-2023. According to the report, the average retail price paid by consumers for PMS, popularly known as “petrol”, printed at N257.1 in Jan-2023, a 54.5% y/y increase compared to its N166.4 print in Jan-2022. On a monthly basis, average petrol prices climbed by 24.7% m/m from N206.2 in the prior month. The increase can solely be attributed to the supply crunch on petroleum products resulting in the fuel scarcity crisis in the country. The low supply was driven by the rising landing cost of imported fuel amid FX pressures in the parallel market. This has made it more expensive for private depots to ship products to their depots, forcing them to raise their ex-depot price.

The resultant effect of the rising petrol cost is its extended price pressures across the Nigerian economy. The increase in energy costs has had a “trickle-down” effect on other components of the economy, including transportation costs, housing, and utilities. Thus, core inflation rose by 19.2% y/y in Jan-2023, representing a 66bps increase compared to the prior month. At the same time, the price of services provided by service-based businesses (Education, Recreation & Culture) surged as they navigated a higher operating cost environment.

The Nigerian National Petroleum Company Limited (NNPC) announced it had provided c.1.8bn litres of petrol sufficient to cater for demand between mid-Feb and Mar-2023. This is part of its efforts to sustain the supply of petroleum products across the country and avoid the re-emergence of queues in Nigeria. However, we believe that the price pressure on PMS will persist in the short term due to rising logistics costs associated with lifting PMS from the vessels to depots for distribution. Lastly, the possible removal of fuel subsidy by the end of Jun-2023 implies that consumers will begin to bear the actual cost of petroleum products. This will further weigh on the general price level in the country. However, the commencement of the Dangote refinery in H2-2023 may serve as a miniscule cushion for prices.