According to oilprice.com, oil prices have continued to rise, with WTI breaking above $91.60 and Brent trading at $94.74 based on early Monday trades. The global benchmark, Brent Crude, reached more than $94 per barrel, increasing by 0.69% to $94.57.
The escalating cost of crude oil, combined with the depreciation of the Nigerian naira against the United States dollar, has prompted oil marketers to warn of a potential increase in the retail price of Premium Motor Spirit, commonly referred to as petrol. It has been reported that the significant increase in crude oil prices in recent weeks and the forex prices have led to the Federal Government quietly spending more on petrol subsidies.
Also Read: High Oil Prices, Low Government Revenue: A Nigerian Paradox
Downstream oil sector experts have clarified that the price of crude oil and the dollar exchange rate together comprise more than 80% of Premium Motor Spirit’s (PMS) cost. Last week, the Naira depreciated to an all-time low of N950/$, with the CBN’s rate at N789/$ as of Monday Morning.
While the Federal Government and NNPCL have maintained that they ended petrol subsidies after deregulating the downstream oil sector, industry insiders have argued that the government is implementing a form of partial subsidy. They pointed out that due to the recent increase in crude oil prices, the cost of petrol was expected to go up. They emphasized that if the government continues to sell it at N617 per litre, it essentially means that the petrol subsidy has quietly returned.
The marketers clarified that back in July, when petrol prices reached N617 per litre, crude oil was priced at approximately $82 per barrel, and the parallel market exchange rate was not as high as N950 per dollar.
In one of his statements, the Group Chief Executive Officer of NNPC made it clear that as long as the value of the dollar keeps increasing, petroleum product prices won’t remain fixed. The rising cost of crude oil also plays a role in determining petrol prices since PMS is made from crude oil.
The National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike in an interview with PUNCH newspaper noted, “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.”
Adding, “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 mentioned that while the increase in crude oil prices could boost Nigeria’s foreign exchange earnings, the foreign exchange was being utilized to buy refined products from abroad.
“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.”
Also Read: Four Trillion Petrol Subsidy: How Much Subsidy Is Too Much Subsidy?
President of the Petroleum Products Retail Outlets Owners Association of Nigeria, Billy Gillis-Harry, expressed the view that despite the recent increase in crude oil prices, the NNPC should be capable of handling it in a way that benefits Nigerians in terms of petrol prices.
He noted, “Crude oil is selling at a higher price and that price should impact positively because the major importer of petroleum products is the NNPC and they do that on a swap basis, unless they are telling us that the swap is not efficient. For if it is efficient, they should have more money for the size of crude oil they sell, which should impact on the price they pass on to Nigerians. Yes, today it is a commercial company, but it is still owned by Nigerians and is a sovereign company.”
