Nigeria’s absurd oil market logic: Fuel prices increase despite drop in global crude cost

There seems to be a contradiction in the Nigerian oil market given the considerable shift in crude prices, spurred by Donald Trump’s tariff policy.

• Crude prices fell to $65 per barrel due to Trump’s import tariffs and OPEC+ supply increase.
• Landing cost of petrol dropped to N865, but ex-depot petrol price increased to N900 per liter.
• Nigerian oil market is not reacting positively to the drop in crude prices.

Last week, crude prices fell to its lowest levels since 2021, owing to Trump’s import tariffs and a sudden crude supply increase by OPEC+, which knocked $10 a barrel off global benchmarks.

By Friday, crude prices plunged to $65 per barrel.

A bulletin by the Major Energies Marketers Association of Nigeria issued on Saturday, as reported by the Punch newspaper, showed that the landing cost of petrol dropped from N885 the week before to N865 as of Saturday.

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While this should typically spell good news for crude-importing Nigeria, ex-depot petrol price saw an increase of N40, going from N860 to N900 per liter in Nigeria’s commercial hub, Lagos.

This indicated that the Nigerian oil market refuses to act positively to the drop in global crude prices, as the state-owned oil and gas company, the Nigerian National Petroleum Company (NNPC) Limited, insists on forcing Nigerian refiners to purchase crude in dollars.

To buttress Nigeria’s odd reaction to a positive shift, the Crude Oil Refinery Owners Association of Nigeria (CORAN), has said that there is no reason why Nigeria’s fuel price should not crash below N400.

Given that the cost of importing crude has fallen by the equivalent of N15,481.40, the group argued that it should reflect very significantly in the price of petrol, creating a relief that should take gasoline prices from N900 to N400.

Additionally, the organization stated that if crude prices finally drop to $50 per barrel, there is no reason why gasoline shouldn’t be offered for N350 per liter.

However, in spite of the decline in the price of oil and the decrease in its landing cost, CORAN warned that petrol prices in the West African country is set to spike.

The group highlighted the relevance of the naira-for-crude initiative, which had been scrapped by the NNPC.

In an interview with the Punch, Eche Idoko, the Publicity Secretary of the CORAN disclosed that there are still certain individuals who intend to maintain the practice of bringing inferior petroleum products into the nation.

What CORAN said on the Nigeria’s oil market dynamics

According to Idoko’s analysis, the price of locally refined fuel was heading to N700, and thus, some individuals began and continue to kick against the naira-for-crude initiative, which allowed local refineries purchase crude oil from Nigeria in its local currency.

“The price will continue to rise because these middlemen are the elements that want to see that local refining is not sustained. Because when we turned to local refining in this country, we saw the price of petroleum products dropping to as low as N700 plus. And it was going to go down more like we promised you guys.

It is foolhardy for anybody to think that in their bid to continue a regime of importing substandard petroleum products, they will thwart the naira-for-crude policy,” Idoko stated.

“I know that the advisers of President Bola Tinubu, who, incidentally, is the Minister of Petroleum Resources, have been able to analyze where we were before the naira-for-crude policy; where we came to after the implementation of the policy; and where we are heading to after the pilot test of the naira-for-crude policy,” he added.

“I hope you know that as we speak, the price of crude in the international market is reducing; meanwhile, the price of refined food in Nigeria is shooting up. It is simply because of the FX effect. And we have simply said it is a no-brainer. Give crude in naira to local refineries so Nigerians can, at least, enjoy the benefit of being the largest oil-producing country in Africa,” he continued.

When asked to clarify how fuel prices are rising although crude oil prices have dropped to $65 per barrel internationally, Idoko cited logistics, foreign exchange, and the impact of intermediaries.

“The price will keep rising because of the FX and logistics effects. The cost of logistics, when you add it to the cost of FX, would make the price go up. And of course, because of the money involved when you have to also accommodate the middlemen who sell,” he said.

Naira-for-crude debacle with the Dangote Refinery

The Nigerian National Petroleum Company (NNPC) Limited recently discontinued its Naira-for-oil program, which involves selling crude to regional refineries in the nation’s currency.

The report that the NNPC had forward-sold all of its crude, even though production levels were greater now than when the arrangement started almost six months ago, served as the basis for the decision.

“Forward-sold all its crude” indicates that the Nigerian National Petroleum Company (NNPC) Limited has already sold future petroleum output ahead of schedule, maybe in order to meet contractual commitments, pay off debts, or obtain quick cash.