Nigeria: Fuel Price Swings and Dicey Economic Prospects

Curiously, within a space of two weeks, Dangote Refinery has changed the price of its fuel (Premium Motor Spirit, PMS) twice. First, it raised the price on January 19, 2025 from N899 to N955 per liter “due to a surge in global crude oil prices.” On February 1, 2025, it reduced the price to N890 per liter, citing “a positive outlook in global energy markets and a decline in international crude oil prices.”

Each of these price adjustments attracted reactions from all stakeholders: fuel importers, distributors, refiners, regulatory agencies, etc. Notably, the Federal Government through the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) had to practically ban further export of crude oil by the producing companies. This is in realization of the fact that Dangote’s price adjustments were directly dictated by oil price movement in the international market.

In a letter dated February 2, 2025, and addressed to exploration and production (E & P) companies and their equity partners, NUPRC said diverting crude oil meant for local refineries was a violation of the extant laws of the country. The E & P companies were specifically admonished for not keeping to the terms of the ‘Domestic Crude Supply Obligation (DCSO)’ policy mutually accented to by critical oil industry players.

The shoddy implementation of the DCSO and the Federal Government’s indiscretion regarding oil issues had complicated the hydrocarbon business terrain in the recent past. Directly or otherwise, the resulting difficult and unreliable crude oil supply arrangement has ‘forced’ Dangote Refinery to face the vagaries of crude oil volatility in the global market, from where it imports crude.

In the face of this condition, the Government had to initiate a strategy for Dangote Refinery and others to buy and pay for crude in the local the currency—Naira. This was the ‘Naira-for-Crude’ policy.

Owing to the failure of this initiative put in place for Dangote and other local refineries to be supplied crude oil (paid for in Naira) by the oil companies, Dangote had to resort to oil importation for its operations. This has exposed the refinery to the vagaries and volatility of the politics and pricing of crude oil in the international market.

The global oil price volatility has gotten heightened since the inauguration of Donald J. Trump, the 47^th President of the United States of America on January 20, 2025. Trump had announced a sweeping new energy policy which he said aims to “encourage energy exploration and production on Federal lands and waters, including on Outer Continental Shelf, in order to meet the needs of our citizens and solidify the United States as a global leader long into the future.”

The U.S. President has followed up his stance with a message at the World Economic Forum in Davos, Switzerland, urging the Organization of Petroleum Exporting Countries (OPEC) to bring down oil prices, citing the impact of high fuel costs on the Russia-Ukraine war. Trump said he intended to ask Saudi Arabia and OPEC to reduce oil prices, which he believed would help the conflict.

These Trump’s presidential pronouncements have jolted oil prices, and will do even more as he backs up his threats with actions over time. Therefore, Dangote Refinery, having been pushed into the global oil arena for its crude oil needs, has been adjusting its product’s prices in line with the global market realities.

OPEC+ on its part has already extended its oil production cuts until April 2025 and 2026, citing geopolitical uncertainty and anticipation of Trump’s influence on US-Saudi and OPEC dynamics. This scenario depicts the looming challenge to Nigeria and its bloated crude oil production projection in its 2025 budget. While OPEC is pursuing production cuts, Nigeria is pushing to hit over two million barrels per day (all through 2025), from a lowly level of 1.45 million barrels per day as of end-December 2024.

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Howbeit, whether crude oil prices go up or drop—all have unwholesome implications for Nigeria—as a largely import-dependent nation, and an almost mono-product economy. This is more so as the country (so far) still depends so much on imported PMS for its daily fuel needs. If the price of crude rises in the international market, it usually quickly transmits to rise in the prices of refined products.

For Nigeria, therefore, what is (usually) gained from rising oil price gets more than lost through high prices of refined products. The reverse is the case, when prices of oil drop. And over the years, successive administrations have made a mere singsong of economic diversification drive, leading to the total collapse of local refining.

Apparently, this accounts for why NUPRC, in panic, had to threaten the E & P oil companies—in a show of the Federal Government’s determination to encourage local refining. Meanwhile, the refining sector remains riddled with outright sabotage or shoddy adherence to policies by critical stakeholders.

At a recent meeting, attended by virtually all key industry players, both refiners and oil producers blamed each other for inconsistencies in the implementation of the DCSO policy. Refiners claimed that producers were not meeting supply terms and preferred to sell crude outside, forcing them to look elsewhere for feedstock.

Oil producers on their part, countered that refiners hardly meet commercial and operational terms, forcing them to explore other markets elsewhere, to avoid unnecessary operational bottlenecks. But the ding-dong between the refiners and the producers has stalled both the DCSO and ‘Naira-for-Crude’ initiatives, leaving local refining wobbly.

This is why Dangote Refinery—situated in an export processing zone (EPZ)—has opted to deploy its ‘dual citizenship’ to serve the local and foreign markets—to which it has exported some of its products. In point of fact, the refinery, in the past one year, has exported its products to a number of African countries, including Cameroon, Ghana, Angola, South Africa, among others.

Whilst Dangote Refinery actively explores the foreign markets for its survival, the conspiratorial methods of some regulators and operators in the oil sector tend to constrict the industry. This is why, despite the much publicized repair and re-streaming of the Port-Harcourt and Warri refineries by the Federal Government, their impact in terms PMS supply remains to be felt several months after.

It then boils down to Nigerian economy remaining at the mercy of the vagaries of oil prices in the global market: importing PMS at prices dictated by entirely external forces. This translates to an economy left also to the buffeting of upshots of global geopolitical tensions and socio-economic volatilities. This becomes more ominous at this time of an emerging New World Economic Order embodied by President Donald Trump and his weird nationalism.

• The author, Okeke, a practicing Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: [email protected] (08033075697) SMS only