Fluctuating oil prices put indigenous OMCs, BDCs in peril

Price fluctuations in global crude and refined product prices are taking a heavy toll on Ghana’s downstream markets, resulting in Bulk Oil Distributors losing millions of dollars and throwing many indigenous Oil Marketing Companies out of business.

Out of the 130 oil marketing companies operating in the country, 50 – according to estimates – are said to be financially challenged; thus hampering their ability to lift and sell petroleum products from Bulk Oil Distributors on a regular basis. For the month of April, 45 Oil Marketing Companies where not able to lift petroleum products; while in June the Association of Oil Marketing Companies (AOMCs) estimated that 22 companies did not lift products.

An industry source told the B&FT that a Bulk Oil Distributor (name withheld) lost US$5million after selling a consignment, due to oil price fluctuations on the world market. The development, according to some industry players, is cause to worry and needs urgent government attention before indigenous oil marketing companies are wiped out of the sector due to financial challenges.

Happenings on the world market also predict higher petroleum prices for the future, which has the tendency of having a cascading effect on the prices of all goods and services due to a possible hike in transportation – a critical factor in the determination of inflation.

After the effects of COVID-19 pushing oil prices down and resulting in cheaper petroleum products here in Ghana, Africa and some parts of the world, the unstable decisions by the Organisation of Petroleum Exporting Countries (OPEC) and the trade war among world superpowers is greatly affecting pricing of the commodity – making it difficult to predict and fashion a business model to make reasonable margins here in Ghana.

“In April, 45 oil marketing companies could not lift products because it had become too expensive. This means that the stations of these oil marketing companies will be dry. They have to wait and gather some money before they come back into business, and almost all these companies are indigenous. They have no external cash flow to depend on. It has not been easy; companies now need to be very tactical.

“The BDCs are also careful they do not lose out due to the sharp price increase on the world market; so, the sector is really under distress,” Chief Executive Officer of the Association of Oil Marketing Companies (AOMCs), Kwaku Agyeman Duah, told the B&FT in an interview.

He added that many jobs will be on the line if care is not taken, and is recommending a national dialogue to find some ways of cushioning indigenous players in the sector. “During this same time, if you look at the upstream, it (the price) is going up and the country will be making some more money from it. So, we think a national conversation should go on how best some sort of subsidy can be introduced to help cushion the sector. Maybe we could use the extra profit from the upstream sector.”

With all the issues of government subsidy in mind – which resulted in some debt in the past that nearly crippled the downstream oil sector – Mr. Agyeman Duah said government must tread cautiously in any decision it would want to take. He also noted that the country can prepare incentives and start serious advocacy for the use of electric cars, with the aim of reducing the pressure on petroleum products.

Source: B&FT Online