There are more woes ahead for the Nigerian economy as the heads of the three biggest commodity traders — Vitol, Gunvor and Trafigura have raised the alarm over a looming shortage in global diesel supply.
This rising price of diesel, which is not regulated by the government, is on the back of the war between Russia and Ukraine which has led to a significant increase in the price of Brent crude, the gauge of Nigeria’s crude oil which hit $114 per litre on Tuesday.
“The thing that everybody’s concerned about will be diesel supplies. Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East,” said Russell Hardy, chief of Switzerland-based oil trader Vitol. “That systemic shortfall of diesel is there.”
Those Russian imports account for roughly 15 percent of Europe’s diesel consumption, while crude oil including supplies from Russia is also processed by refineries on the continent, according to data from oilprice.com
Hardy added that refineries could boost their diesel output in response to higher prices at the expense of other oil-derived products to shore up supply, but acknowledged that rationing was a possibility.
Torbjorn Tornqvist, co-founder and chair of Geneva-headquartered Gunvor Group, added: “Diesel is not just a European problem; this is a global problem. It really is.”
Tornqvist also said European gas markets were no longer functioning properly as traders faced huge demands from banks for cash to cover hedging positions. “I think it’s broken. It really is,” he said. “I never thought that somebody could say ‘ah, gas has fallen below 100 per megawatt-hours is really cheap’.”
Meanwhile, Jeremy Weir, chief executive of Singapore-based Trafigura, said that 2-2.5mn barrels of Russian oil production would go missing from the global market, split between crude and refined products.
“The diesel market is extremely tight. It’s going to get tighter,” he said.
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Observers believe that, while global businesses are feeling the pinch, the Nigerian government is powerless because the downstream diesel sector is deregulated.
According to the Lagos Chamber of Commerce and Industry (LCCI), the increase in diesel price is expected to triple the cost of production and accelerate the inflationary pressure on the country.
“It is unfortunate that the price of the product keeps increasing and nothing is being done about it. The high inflation rate in the country means that people have less money to buy things, and when prices are going up and the masses have less money to buy those products, we are going to have a lot of joblessness in the country,” the president, Association of Small Business Owners of Nigeria, Femi Egbesola said.
Diesel is mostly used by businesses, especially manufacturers, to power their generators amid a lack of reliable power supply from the national grid. Many vehicles transporting goods and people across the country also use diesel.
“This means that the country’s electricity sector is fast becoming degenerate as 12 in every 25 Nigerians make use of generators, spending about $16 million to fuel only 14 million of these generators annually,” Financial Derivatives Company Limited said in a new report.
