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Oil price free fall: Petrol now N50 a litre!!

The freefall of crude oil prices in the international market in the last few weeks has brought down the landing cost of petrol to below N50 per litre or N20 less than the current pump price of petrol in Nigeria, Daily Trust authoritatively gathered yesterday.

On Friday, light sweet crude for December delivery fell $1.20 to settle at $57.04 a barrel on the New York Mercantile Exchange.

Nigeria’s crude oil price monitor, the Petroleum Products Prices Regulatory Agency (PPPRA) said the landing cost for Premium Motor Sprit (Petrol) as at Thursday dropped to N47.45/litre. This was a huge reduction of N66.57/ litre compared to petrol’s N114.17/litre landing cost in June this year.

PPPRA said the Ex- Depot cost of petrol, that is, the cost of refined oil including bridging fund, port charges and transportation cost as at Thursday was N60.90/litre, while the expected open market price is N62.62/litre.

Daily Trust gathered that the expected Open Market Price at N62.62/litre is still far below the N70/litre benchmark for petrol as approved by government. By implication, the much touted petrol subsidy by government has now turned into a healthy profit.

Government had announced that fuel import subsidy may amount to N700bn this year alone. In 2006, government said it spent N261.1 billion under the Petroleum Support Fund (PSF) Scheme as subsidy for PMS and House Hold Kerosene (HHK) alone. For last year, government said it spent N278.86 billion on fuel subsidies. Although no official announcement has been made by government with regard to a possible downward review of the pump price of petroleum products, some sources from oil agencies told Daily Trust that if the trend continues like this, a cut in fuel pump prices may have to be made early next year. Another source in the Ministry of Energy [Petroleum] told Daily Trust that it is likely that government may make a definite statement about the domestic pump price this week.

Other products affected by the fall in crude oil prices are Dual Purpose Kerosene (DPK) and Automotive Gasoline Oil (AGO). The landing costs of the two products are N70.42 and N66.50/ litre respectively, although the AGO market has been deregulated.

The ex-depot price of the two products i.e. DPK and AGO are N40.90 and N60.15/litre while the expected open market price was N88.31 and N85.25 respectively as at Thursday last week.

Some analysts are forecasting even more falls in international crude oil price. An OPEC official told Associated Press the 13-member states would meet in Cairo on November 29 on the sidelines of a previously planned meeting for Arab members of the group. OPEC held an emergency meeting only three weeks ago and slashed production by 1.5 million barrels a day. Crude has tumbled 8 percent since then. Oil prices have fallen about 60 percent during the last four months after reaching $147.27 in July.

OPEC, which produces about 40 percent of world supplies, has said it may cut production by the end of this month if prices continue to fall. Before the 1.5 million barrel cut, OPEC said it was taking 520,000 barrels out of daily production. That too was brushed off by the market.

Many analysts are expecting a big drop in consumption in the developed economies next year and most suggest that a further rise in demand in developing economies just about offsets that fall in demand. But some economists are now talking about a fall in global oil demand in 2009.