Oil marketers have warned that the escalating cost of crude oil, combined with the depreciation of the Nigerian naira against the United States dollar, could lead to an imminent increase in the pump price of Premium Motor Spirit (PMS), commonly known as petrol. The situation has prompted discussions about the revival of fuel subsidies by the Federal Government.
Recent reports reveal that the price of crude oil surged to approximately $94 per barrel, marking the highest figure in 2023. This significant spike in crude oil prices, which began the year at around $82 per barrel, declined to $70 per barrel in June but has rebounded to over $92 per barrel in the past week.
Experts in the downstream oil sector emphasize that over 80 percent of the PMS cost can be attributed to the cost of crude oil and the exchange rate of the dollar. This steep increase in crude oil prices, coupled with a weakening naira, has raised concerns about the economic stability of the country.
The naira’s value has been on a downward trajectory, with recent reports indicating it weakened to N950 against the dollar due to worsening forex scarcity. Bureau de Change operators reported that the naira traded at 935/$ to 950/$ on Wednesday, compared to its previous closure at 930/$ just the day before.
Despite the Federal Government and the Nigerian National Petroleum Company Limited insisting that fuel subsidies had ended following the deregulation of the downstream oil sector, operators are now asserting that the government is effectively implementing a quasi-subsidy. They argue that with the latest surge in crude oil prices, maintaining petrol at the current price of N617 per litre implies the quiet return of fuel subsidies.
Notably, in July, when the petrol price was last raised to N617 per litre, crude oil was trading at approximately $82 per barrel, and the exchange rate had not reached the current high of N950/$ in the parallel market.
The Nigerian Association of Road Transport Owners (NARTO) has also voiced concerns, stating that the price cap on petrol has made it challenging for marketers to meet the demands of increased transportation costs for petrol.
The National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, stated, “The Group Chief Executive Officer of NNPC, in one of his statements, had pointed out that as long as the dollar continues to rise, Nigerians should not expect petroleum products prices to be pegged. The cost of crude oil is also on the rise and it impacts on petrol price, because PMS is derived from crude.
“So in this price deregulation regime, once the dollar increases, automatically it means that the cost of importing petroleum products will also increase. And the cost of every other related service will rise.”
He added, “So the fuel we are buying today at N617 or N596 depending on where you buy it and based on the nearness to depots, is actually below what the price should really be, going by the rise in dollar and crude oil price.”
Ukadike pointed out that while the surge in crude oil prices could potentially boost Nigeria’s foreign exchange revenue, these foreign reserves were being utilized for the importation of refined products.
“I said earlier that what we are experiencing now is quasi-deregulation. The rise in crude oil price has both positive and negative effects on Nigeria. It is positive because it increases our generation of dollars when we sell the crude.
“But it is negative in the sense that we still use that dollar that we have got to import the finished products of crude. That is the problem. For if Nigeria is refining products, then there will be a windfall, but since we import with the dollar that we make, then it makes no sense.”
When asked about the possibility of escalating oil prices leading to additional increases in the prices of PMS and other finished goods, potentially resulting in an increase in petrol subsidies, Ukadike responded affirmatively, stating, “Yes, of course.
“The gap is becoming too much. Also, the exchange rate gap between the official and parallel markets is widening. And these gaps have to be filled by the government through quasi-subsidy on petrol.
“You also know that most of the investors who tried to import products when it was announced that the subsidy on petrol had been removed, are now finding it very difficult to do so.
“This is because after buying the dollar in the parallel market, they cannot recoup what they have invested. So the government must be transparent with this subsidy removal thing. It should apply it to the fullest, so that competition can set it.”