By Akinsuroju Abiodun Olubunmi
Crude prices escalation threaten potential fuel price surge in Nigeria
As global crude oil prices surge to $94 per barrel, coupled with the depreciation of the Nigerian naira against the US dollar, oil marketers have cautioned that the pump price of Premium Motor Spirit (PMS) – commonly known as petrol – might witness an increase.
Reports indicate that the sharp spike in crude prices, now at their highest in 2023, along with ongoing forex challenges, have prompted a gradual rise in the subsidy expenditure on petrol by the Federal Government.
Dealers in the downstream oil sector highlight that over 80% of the PMS cost is attributed to the price of crude oil and the exchange rate of the dollar.
Brent crude, the global oil benchmark, has surged to $94 per barrel, a significant escalation from the start of the year when it was approximately $82 per barrel. In June, it had briefly dipped to $70 per barrel before steadily climbing back up, trading above $92 per barrel in recent days.
Furthermore, recent reports indicate the naira weakening to N950 per dollar amidst heightened forex scarcity, showing a further decline from previous rates.
Despite assertions from the Federal Government and the Nigerian National Petroleum Company Limited that petrol subsidies have been phased out following downstream sector deregulation, industry operators argue that a form of quasi-subsidy is in effect.
They argue that given the latest spike in crude oil prices, the cost of petrol should logically increase. If the government insists on maintaining the price at N617 per litre, it suggests that a subsidy on PMS has been quietly reinstated.
Back in July, when the petrol price was raised to N617 per litre, crude oil was trading around $82 per barrel, and the parallel market exchange rate was not as high as N950 per dollar.
The Nigerian Association of Road Transport Owners aligns with the concerns of marketers, asserting that the price cap on petrol has made it challenging for marketers to meet NARTO’s demands for increased transportation costs.
While rising oil prices are positive for revenue, they also pose a dilemma for Nigeria, which imports refined products with the dollar earned from crude exports. This situation underscores the importance of refining capacity within the country.
As the cost disparities and forex challenges persist, the government faces mounting pressure to clarify its stance on fuel subsidies and the pricing mechanisms in place. The industry awaits transparent policies that align with market dynamics and ensure a sustainable energy future for Nigeria.