Petrol Price Hike Looms as Crude Oil Costs and Currency Depreciation Bite

Petrol Price Hike Looms as Crude Oil Costs and Currency Depreciation Bite

The cost of Premium Motor Spirit (PMS), commonly known as petrol, may soon witness a surge due to the increase in crude oil prices and the depreciation of the Nigerian currency against the United States dollar. Oil marketers have expressed concerns about the potential hike in the pump price of petrol, citing the sharp rise in crude oil prices and the ongoing forex crisis.
According to industry experts in the downstream oil sector, the cost of crude oil and the exchange rate of the dollar account for a significant portion of the PMS cost, with over 80% attributed to these factors. The global benchmark for oil, Brent crude, reached $94 per barrel, marking the highest figure in 2023. The year began with oil prices at around $82 per barrel, dipping to $70 per barrel in June, but recently climbed above $92 per barrel. Additionally, the naira weakened to N950 per dollar due to worsening forex scarcity.

While the Federal Government and the Nigerian National Petroleum Corporation (NNPC) have maintained that petrol subsidies have been eliminated through the deregulation of the downstream oil sector, industry operators argue that the government is implementing a form of quasi-subsidy. They assert that with the recent surge in crude oil prices, the cost of petrol should increase accordingly. They contend that maintaining the commodity at N617 per liter implies a quiet return of subsidies on PMS.

Industry dealers point out that when petrol prices were raised to N617 per liter in July, crude oil was trading around $82 per barrel, and the exchange rate was not as high as N950 per dollar on the parallel market. The Nigerian Association of Road Transport Owners (NARTO) supports the concerns of the marketers. They argue that the price cap on petrol has made it challenging for marketers to comply with NARTO’s demands for increased transportation costs.

The National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, explains that the increase in crude oil prices and the exchange rate of the dollar impact petrol prices as PMS is derived from crude oil. He adds that the rise in the cost of petrol is below what it should be considering the appreciation of the dollar and the surge in crude oil prices.

Ukadike emphasizes that Nigeria’s foreign exchange earnings will increase with the rise in oil prices. However, the forex is primarily being used to import refined products, resulting in limited benefits for the country. He suggests that if Nigeria were refining its products, there would be a significant advantage. However, since the country imports with the dollars earned from crude oil sales, the benefits are diminished.

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