Nigerians may face a new surge in petrol prices following the recent decision by the Nigerian National Petroleum Company Limited (NNPCL) to terminate its exclusive offtake agreement with Dangote Refinery.
This shift allows other marketers to purchase petrol directly from the facility, raising concerns about the impact on fuel costs.
In August, the NNPCL adjusted the petrol price from N568 to N855 per litre in Lagos, with prices approaching N900 in other regions.
Analysts suggest that this change will likely lead to further increases as the NNPCL will no longer absorb the price difference between the refinery’s cost and the retail price, which previously included a subsidy of N133 per litre.
“We can no longer continue to bear that burden,” an NNPCL official told Premium Times, highlighting the financial strain of the subsidy system.
This decision marks a step toward a fully deregulated oil market, allowing marketers to negotiate prices directly with Dangote under a “willing buyer, willing seller” framework. This model aligns with the pricing strategies used for other deregulated products like diesel and kerosene.
Devakumar Edwin, Vice President at Dangote Industries, noted last month that the refinery, which has a capacity of 650,000 barrels per day, had commenced petrol processing with NNPCL as the sole off-taker. However, the recent adjustments now enable independent marketers to engage with Dangote directly.
Amid this shift, global oil prices are also on the rise due to escalating tensions in the Middle East, which could further impact fuel costs in Nigeria.
Brent crude prices recently approached $80 per barrel, influenced by fears of broader conflict that could disrupt oil exports from the region.
“Pre-shale revolution, this type of situation would have sent prices well above $100,” said Helima Croft, global head of commodity strategy at RBC Capital Markets, in a CNN analysis.
Economist Paul Alaje warned that ongoing tensions could lead to a full-scale war, resulting in global fuel shortages. “If Israel retaliates against Iran, we may face a global supply shortage of oil. This will inevitably lead to surging prices in Nigeria and elsewhere,” he explained.
Dr. Ayodele Oni, an oil and gas expert, added, “Without a subsidy, pump prices will increase correspondingly with rising crude prices. The only buffer we have against these price hikes is the subsidy system.”
While the NNPCL’s exit from the middleman role and the potential for increased global oil prices indicate challenging times ahead for consumers, analysts note that OPEC’s producers, including Saudi Arabia and the UAE, have sufficient spare capacity to counteract potential supply disruptions. However, any escalation involving Iranian proxies targeting regional oil infrastructure could trigger a significant spike in prices.
As Nigerians brace for potential petrol price hikes, the NNPCL’s move represents a turning point in the nation’s oil market, further complicating the landscape for consumers and policymakers alike.
