The dynamics of petroleum product pricing in Ghana remain a complex interplay of several variables. While the Ghana cedi’s performance has been one of the significant determinants of petroleum prices at the pumps, the anticipated correlation between the cedi’s recovery and reduced pump prices has often been elusive.
This puzzling disconnect underscores the complex interplay of factors influencing fuel pricing in the country, raising critical questions about the relative importance of exchange rate stability in the pricing of petroleum products.
Dr. Riverson Oppong, CEO of the Association of Oil Marketing Companies (AOMC), has emphasized the emerging recognition of the Ghana cedis’ critical role in determining the price of petroleum products.
“Historically, the pricing mechanism in Ghana was primarily based on international benchmarks, including the Platts Price for finished petroleum products, Argus for liquefied petroleum gas (LPG), and Brent crude oil prices.
“These benchmarks determined the ex-pump prices, with exchange rate fluctuations having a relatively indirect role.”
Dr. Riverson Oppong, CEO of the Association of Oil Marketing Companies (AOMC)
According to Dr. Oppong, 2024 has marked a shift in the understanding of the cedi’s importance in petroleum pricing. While global benchmarks primarily influenced prices in the past, the depreciating cedi has underscored its critical role in determining pump prices.
“When we import petroleum products, we pay for them in dollars. Once you sell in cedis but need to repay in dollars, the exchange rate impacts your ability to recover costs.
“Even when global prices decrease, a weak cedi can erode the benefit of those reductions.”
Dr. Riverson Oppong, CEO of the Association of Oil Marketing Companies (AOMC)
In recent months, the Ghana cedi has shown signs of stability and recovery, a development expected to bring relief at the pumps.
However, this has not been the case. Despite crude oil prices and Platts prices experiencing marginal drops—hovering around $600 per metric tonne—pump prices in Ghana have not reflected these changes significantly.
Dr. Oppong attributed this to two main reasons: “Importers of petroleum products convert cedis into dollars to transact on the international market. Even a slight depreciation of the cedi against the dollar increases the cost of importing fuel, affecting the final pump price.”
He further indicated that many oil marketing companies (OMCs) and bulk distribution companies (BDCs) have dollar-denominated debts. A stronger cedi would reduce repayment burdens, but its recovery has not been robust enough to neutralize forex impacts.
Global Petroleum Pricing Trends
Globally, crude oil prices have seen relative stability over the past three months, with some reductions observed. However, Ghana’s local pricing mechanisms are not solely dictated by international trends. Taxes, operational costs, and currency volatility are significant domestic factors that often mask global price declines.
For instance, Dr. Oppong noted that for several pricing windows in the past quarter, Platts prices remained stable or dropped slightly. “Even when the global indicators showed a drop, the expected relief did not translate into reduced pump prices,” he remarked.
The National Petroleum Authority (NPA) employs the deregulated pricing model, allowing OMCs to set prices within specific limits. While this fosters competition and theoretically benefits consumers, it also exposes the market to the vagaries of exchange rate fluctuations.
To bridge the gap between cedi recovery and pump prices, a stable and robust cedi is crucial. Targeted interventions by the Bank of Ghana to stabilize the currency can reduce forex pressure on petroleum pricing.
Looking ahead, the performance of the Ghana cedi will remain pivotal. If the cedi maintains its current trajectory of recovery, coupled with stable global prices, consumers might eventually see relief at the pumps.
However, this requires sustained efforts to mitigate forex impacts and streamline domestic pricing structures.
As Dr. Oppong aptly summarized, “The cedi’s role in petroleum pricing has never been more apparent than this year. For lasting relief, addressing both currency stability and the layered pricing framework is essential.”
The interplay between the Ghana cedi’s performance and petroleum pricing highlights the intricate dynamics of Ghana’s fuel market. While the cedi’s recovery is a positive development, its impact on pump prices is contingent on broader economic and policy measures.
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