Rising Oil Prices And Weak Naira Spark Fears Of Higher Petrol Costs In Nigeria

Concerns are mounting that the pump price of petrol in Nigeria could increase soon due to surging global crude oil prices coupled with the weakening of the naira against the US dollar.

Oil marketers stated that the two key factors of high oil prices and exchange rate depreciation account for over 80% of the cost of imported petrol. With oil crossing $94 per barrel on Sunday – the highest level this year – and the parallel market naira rate over N950 per dollar, marketers say petrol prices are now substantially below costs.

Though the government has insisted the downstream oil sector is deregulated, effectively ending subsidies, industry experts said the N617 per litre petrol price cap means subsidies continue quietly. The current prices based on production costs should be significantly higher based on market conditions.

The Nigerian Association of Road Transport Owners (NARTO) also pointed out the fixed pump price is making it difficult for marketers to increase transport costs, despite surging diesel prices. They have called on the government to revisit the pricing regime.

When petrol costs were last raised in July, oil traded around $82 per barrel and the naira was stronger. Analysts say the widening gaps with current oil and forex rates must be filled through implicit subsidy payments by the Nigerian National Petroleum Company (NNPC).

While higher oil exports will raise Nigeria’s naira earnings, the dollars are needed to import petrol and diesel, limiting the positive impact. With the country still dependent on fuel imports, the high crude prices have not translated into a windfall.

Though the NNPC maintains there will be no price increases, experts say mounting production costs make some upward adjustment inevitable. Nigerians are hoping the NNPC’s new executive appointments will help manage the situation and prevent a sharp petrol price hike.