Fuel price may still rise due to forex crisis, increase in crude oil costs

Oil marketers have stated that the pump price of Premium Motor Spirit better known as petrol may increase due to the increase in the cost of crude oil and the depreciating value of the naira against the US dollar.

According to ThePunch, the rising cost of crude oil price to about $94/barrel and the depreciation of the naira had warranted a gradual increase in the amount the Federal Government quietly spends on fuel subsidy.

On Sunday, September 17, 2023, the global benchmark for oil rose to $94/barrel while forex scarcity worsened as the naira weakened to ₦950/dollar last week.

According to TheGuardian UK, oil prices may reach $100/barrel in September following Russian and Saudi Arabian production cuts and rising demand from China.

Although the Federal Government had insisted that subsidy on petrol had ended following President Bola Tinubu’s inauguration speech on Monday, May 29, 2023, oil marketers who spoke to the newspaper believe the government still implements quasi-subsidy.

President Bola Tinubu. [Presidency] Pulse Nigeria

The marketers explained that the cost of petrol was meant to increase due to the latest rise in the price of crude oil.

They, however, maintained that if the FG leaves the price of petrol at ₦617/litre, then the fuel subsidy the government claimed to have removed has returned quietly.

They explained further that when the cost of petrol was raised to ₦617/litre in July, crude oil traded around $82/barrel. The naira at the time was bought and sold at ₦865 and ₦872 at the parallel market.

Speaking on the possible increase in petrol prices, the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chinedu Ukadike said a rise in the dollar is an automatic increase in the cost of importing petroleum products.

“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 said.

The rise in crude oil price would increase Nigeria’s foreign exchange, Ukadike explained, he, however, added that the forex would continue to be used to import refined products.

“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.” he said.

Ukadike submitted that the rise in crude oil prices would warrant a further increase in the cost of PMS and other finished products, thereby increasing the money the government spends to subsidise the products because the FG will have to fill the widening gap through quasi-subsidy.