INTRO: Despite the recent plunge in global crude oil prices, Nigerians have not seen a corresponding drop in the pump price of Premium Motor Spirit (PMS). Instead, petrol prices continue to rise, with reports of retail prices ranging from N920 to N970 per litre. This paradox has sparked public concern and debate. Based on insights from the Crude Oil Refinery Owners Association of Nigeria (CORAN), there are many reasons why petrol prices remain high as hereunder discussed.
The reasons why petrol prices remain high in Nigeria despite crude oil price crash are:
1. Foreign Exchange (FX) Pressure: A key driver of high petrol prices is the persistent weakness of the naira. Although crude oil prices are falling globally, Nigerian refiners still depend heavily on foreign exchange to import or process petroleum products. The high exchange rate inflates the cost of refining and distributing petrol, offsetting any gains from the crude price crash.
2. Collapse of the Naira-for-Crude Deal: The naira-for-crude arrangement, which allowed local refineries to pay for crude oil in naira instead of dollars, was a vital mechanism for reducing costs. Its discontinuation has forced domestic refiners to source crude from international markets using foreign currency, increasing operational costs and ultimately inflating fuel prices.
3. Dominance of Middlemen in the Supply Chain: CORAN has repeatedly pointed to the disruptive influence of middlemen—individuals or companies who profit by linking Nigerian consumers to international fuel traders. These agents do not take on risk or make investments in refining but inflate prices by charging commissions, making it harder for local refining to thrive.
4. High Logistics and Transportation Costs: The cost of shipping and distributing refined products across Nigeria contributes significantly to the final retail price. Poor infrastructure, insecurity along transit routes, and high marine logistics fees all add layers of cost that are passed down to consumers.
5. Policy Uncertainty and Market Speculation: The Nigerian government’s indecision regarding the continuation of beneficial policies like the naira-for-crude deal has created uncertainty in the energy market. Speculators exploit this vacuum, hoarding products or raising prices in anticipation of further policy reversals, pushing prices higher.
6. Opposition to Local Refining by Powerful Interests: Some entrenched interests reportedly resist the growth of local refining because it threatens their control of the importation business. These actors allegedly spread misinformation, lobby against favorable policies, and manipulate supply chains to undermine Nigeria's refining capacity—ensuring continued reliance on imported fuel at higher costs.
7. Weak Enforcement of Market Regulations: Even though the landing cost of petrol has dropped, the ex-depot price—the price at which depot owners sell to retailers—has inexplicably increased. This suggests a failure of regulation and enforcement, allowing stakeholders to manipulate prices rather than allowing market forces to determine them.
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