Three reasons diesel price is surging in Nigeria

Rising pump prices of diesel in Nigeria have left many businesses in a state of conundrum, choosing between shutting down operations or rationing resources, especially as the country’s power woes continue to linger.

BusinessDay’s findings revealed that the price of diesel has exceeded N1,700 per litre, which is delivering a crippling blow to Nigerian businesses already struggling with chronic power outages.

Here are the reasons diesel prices are surging.

Rising global crude prices

The international price of crude oil, the base ingredient for diesel, has been on a tear. Geopolitical tensions, particularly the ongoing war in Ukraine, are disrupting supply chains and driving up costs.

This global trend has a direct impact on diesel prices in Nigeria, a net importer of refined petroleum products.

According to the National Bureau of Statistics, Nigeria imported 3.2 billion litres of diesel in the first nine months of 2023, increasing by 23.9 percent from the same period in 2022.

Domestic refining woes

While Nigeria is a major oil producer, its domestic refining capacity remains limited. This means the country relies heavily on imported diesel to meet its needs. With global prices surging, the import cost naturally increases, translating to higher pump prices for Nigerians.

Experts said domestic factors such as infrastructure constraints, distribution inefficiencies, and regulatory bottlenecks have also contributed to the diesel price surge. Inefficient distribution networks and logistical challenges have led to delays in delivering diesel to retail outlets, exacerbating shortages and driving prices higher.

Naira’s plunge

The value of the naira has been depreciating against the dollar. Since diesel is typically priced in dollars, a weaker naira means it takes more local currency to buy the same amount of fuel.

This currency depreciation, coupled with rising operational costs for importers and distributors, has further fuelled the upward trajectory of diesel prices. However, oil marketers in the country have called for the move away from the dollar as a means of transaction in the supply chain.

Last week, at a virtual media briefing, Clement Isong, executive secretary of the Major Energies Marketers Association of Nigeria, complained that the complexities of the foreign exchange market uncertainty have stopped members from embarking on the importation of petroleum products.

According to him, it is not easy to put together a correct mathematical calculation of the product’s landing cost to further determine the appropriate pump price.

While sharing his members’ position on the present industry value chain conundrum, he said their investment is not fully protected with the dollarisation of certain charges.