Oil marketers have warned that the price of Premium Motor Spirit (PMS), commonly known as petrol, may soon see an increase due to rising crude oil costs and the weakening value of the Nigerian naira against the U.S. dollar.
The current situation is said to have led to a gradual escalation in the amount the federal government allocates to fuel subsidies.
News About Nigeria gathered that as of September 17, 2023, the global benchmark for oil had surged to approximately $94 per barrel, while the forex situation worsened with the naira weakening to ₦950 per dollar in the previous week.
Analysts from TheGuardian UK have predicted that oil prices could reach $100 per barrel before the end of September, as it is influenced by production cuts by Russia and Saudi Arabia, coupled with rising demand from China.
Despite Nigeria’s Government’s assertion that petrol subsidies had ended following President Bola Tinubu’s inauguration speech on May 29, 2023, oil marketers contend that a quasi-subsidy system still lingers.
They argue that the cost of petrol should logically increase due to the recent uptick in crude oil prices.
When the petrol price was raised to ₦617 per litre in July, crude oil was trading at around $82 per barrel. At that time, the naira was exchanged at ₦865 to ₦872 at the parallel market.
Marketers believe that if the government maintains the current petrol price at ₦617 per litre, it will indicate the return of subsidy, despite official claims of its removal.
Chinedu Ukadike, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, explained that a rise in the dollar’s value directly translates to an increase in the cost of importing petroleum products.
He stated, “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 highlighted that while the surge in crude oil prices boosts Nigeria’s foreign exchange earnings, the forex is continuously used to import refined products.
He stated, “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.”
Ukadike concluded that the increase in crude oil prices is likely to lead to higher PMS and other finished product costs, resulting in increased government spending on subsidizing these products.