Petroleum marketers in Nigeria have experienced a significant surge in bank borrowing, attributed to escalating costs of procuring products and soaring interest rates. The sector’s borrowing reached over N3.0 trillion in the nine months ending September 2024 (9M’24), a sharp 76.5% increase from N1.7 trillion during the same period in 2023 (9M’23).
The surge in borrowing comes in the wake of rising interest rates, with the Central Bank of Nigeria’s (CBN) Monetary Policy Rate (MPR) climbing from 18.75% in 2023 to 27.50% in 2024. This high rate has placed a strain on businesses, making it more expensive for companies to secure capital. However, the rapid increases in petroleum product prices have forced oil marketers to lean on bank loans to manage procurement costs.
In the first three quarters of 2024, finance costs for petroleum marketers also surged to N156.9 billion, a 78.9% jump from N116.08 billion in the previous year. Despite these rising costs, many marketers reported robust profit margins, driven by higher turnover thanks to the spike in pump prices of petrol, indicating that the increased financial burdens were largely passed onto consumers.
For example, the combined profit before tax (PBT) for the major petroleum companies rose by 44.5%, reaching N420.8 billion in 9M’24, compared to N280.8 billion in 9M’23. Similarly, total turnover grew by 57.9% to N5.296 trillion, surpassing the country’s inflation rate of 34.8% in December 2024.
Major companies covered in the Financial Vanguard’s findings include Oando, Conoil, Eterna Plc, MRS Oil, Total Energies, and Aradel Plc.
Inflation and Deregulation Impact
Industry analysts point to high elasticity in the demand for petroleum products as a key reason why oil marketers were able to pass on rising costs to consumers. Additionally, the removal of fuel subsidies in 2023, and the continued deregulation of the oil sector, significantly increased procurement costs, requiring many operators to secure additional working capital through bank credit.
While the government has managed to implement deregulation, this shift has come at a steep price for both businesses and citizens. With the price of petroleum products sharply increasing, companies now need more capital to sustain and expand their volumes, leading to a rise in borrowing.
Market Performance and Future Outlook
Despite the high borrowing levels, the outlook for the petroleum sector remains positive. Analysts are optimistic about the sector’s performance in 2025, citing improvements in product distribution and increased efficiency among operators since the third quarter of 2024. This normalization of operations is expected to lead to higher profits and greater returns for investors.
In terms of individual company performance, Oando led the borrowing chart, with a dramatic 238% increase in its borrowing, reaching N2.773 trillion in 9M’24 from N818.3 billion in 9M’23. Other companies, such as Aradel Plc, Total Energies, and Eterna Plc, also saw significant increases in their borrowings, while MRS Oil did not borrow in the period under review.
Finance costs for several companies also spiked, with Eterna Plc recording the highest increase at 477.7%, while Oando’s finance costs rose by 70.1%. The overall increase in costs has been driven by the need to finance larger capital outlays and manage the rising cost of sales, which for the combined firms increased by 58.26% to N5.153 trillion.
In terms of profit performance, Aradel saw the largest growth in profit before tax (PBT), with a 186% increase to N321.6 billion, followed by Total Energies, which grew its PBT by 151.8%. MRS Oil, Conoil, and Oando also posted strong profit increases, while Eterna’s PBT dropped by 51.3%.
