The price of premium motor spirit, popularly called petrol in Nigeria has been a hot topic lately, with claims from operators of modular refineries circulating that it could drop as low as N300 per litre. But is this really possible?
On Sunday, operators of modular refineries predicted a significant drop in petrol prices at around N300/litre once major production begins at the Dangote Refinery and other Nigerian-owned modular refineries.
However, experts have questioned the feasibility of N300 petrol prices, considering various factors.
A 2023 study by Kaase Gbakon, a senior energy economist, titled ‘Post-Subsidy Gasoline Pricing in Nigeria,’ revealed that crude oil prices and exchange rates are some of the important drivers of the retail prices of petrol is the exchange rate.
Gbakon explained, using a heat map, that the combination of exchange rates and crude oil prices and exchange rates is significant in the fall and rise of pump prices.
“For example, based on an oil price of $90 per barrel and exchange rate of N1000/$1, the model suggests gasoline should retail at N680/litre,” he said.
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He added, “The more naira exchanges per dollar, the higher the expected retail price at any given oil price. Similarly, the higher the oil price, the higher the retail price can be expected to be at any exchange rate”.
BusinessDay findings revealed that the price of Brent Crude increased by 0.69 per cent at $80.17 a barrel on Monday, and the price remains unstable as the Organization of the Petroleum Exporting Countries and allies signalled potential production cuts, stronger-than-expected US economic data dampened hopes of an interest rate cut.
Further findings showed the landing cost of petrol rose by 46.8 per cent to an average of N1,026.71 /litre in May 2024, from N545.83 per litre, recorded in the corresponding period of 2023, when Tinubu declared subsidy is gone.
On May 29, 2023, President Bola Tiubu announced the removal of the petrol subsidy upon his resumption into office, but data seen by BusinessDay countered this, revealing a significant increase in the landing cost of petrol.
Before the removal of the petrol subsidy in May 2023, the naira was N460 at the official market but has slumped by over 100 per cent in one year to N1,476.95 as of Monday.
At the parallel market, Nigeria’s local currency was sold at N760/$1 before the pronouncement of the termination of the fuel subsidy. Still, the naira fell to N1,483 on Friday buoyed by different macroeconomic policies of the federal government.
Jide Pratt, country manager of Trade Grid, states that with where crude oil, gasoline index and exchange rates are, the modular refinery expectations of slashing petrol pump price to N300/litre is unrealistic.
He added, “I can argue further that the Dangote refinery will have a freight addition as she imports more of her crude. In my opinion, N600 levels may be more realistic and the question is how do we achieve that without subsidy?”
The Claim: Local refining of crude oil will bring down petrol prices to N300 per litre.
The Verdict: Mostly False.
