Crude Slump: Nigerians Await Price Cut as Analysts Explain Delay

Nigerians are demanding a reduction in petrol pump prices, urging the Dangote Refinery, the Nigerian National Petroleum Company Limited (NNPC), and fuel marketers to bring costs below N1,000 per liter. This pressure comes despite a fall in crude oil prices to around $72 per barrel, with current rates hovering between N1,250 and N1,360 per liter.

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What Nigerian consumers are saying is that the Donald Trump approach applies to Nigeria too. Dangote is not dropping the price of fuel fast enough and people are complaining. The price of crude oil is now below the pre-crisis levels, and yet petrol is still selling at over N1,000 per litre.

The Dangote Refinery has reportedly acquired two crude oil cargoes from the UAE, marking a potential shift towards heavier crude grades. However, this development has not yet translated into lower prices for consumers, who are questioning why the urgency shown in raising prices during periods of high crude costs is not mirrored in reductions now.

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For many Nigerians, PMS price at above N1,200 a litre when crude trades for only $73 per barrel is not logical and supportive of current realities. Fuel price should be below N900 by now.

Energy analysts attribute the persistent high prices not to price gouging, but to a structural lag. Factors such as replacement cost, foreign exchange rates, and the need to sell off existing inventory purchased at higher prices are cited as reasons for the delay. Kelvin Emmanuel, Managing Partner at The Energy Consulting Practice, explained that the operationalization of Transfer Pricing Rules under the PIA is crucial for accurately translating crude oil prices to petrol prices.

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Transfer pricing rules are important because it is what makes sure that you can translate crude oil to petrol prices. When crude prices are going up, it’s easier to raise petrol prices than it is to bring down petrol prices when there is a fall in crude prices.

Emmanuel further elaborated that when crude prices rise, it is easier to adjust petrol prices upwards. Conversely, bringing prices down is more complex because refineries may still hold inventory bought at higher "dated" crude prices. Until these higher-cost cargoes are depleted, immediate price reductions at the pump are unlikely, making it difficult for consumers to see a swift transition to lower prices.

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The refinery has already bought cargoes at dated prices that are higher than the current market. So, until it exhausts those cargoes… it’s going to be difficult for you to see an immediate price transition.