The price of Premium Motor Spirit (PMS), commonly known as petrol, may continue to decline if crude oil prices keep falling.
Analysts suggest that this trend could be further strengthened as the naira maintains its stability against the dollar in the foreign exchange market.
Crude Oil Price Decline
Oil prices fell by about two percent to a 12-week low this week, following reports that the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) will proceed with a planned oil output increase in April.
Brent crude futures dropped by $1.19, or 1.6 percent, to settle at $71.62 per barrel, while the United States West Texas Intermediate (WTI) crude fell by $1.39, or two percent, to settle at $68.37 per barrel.
According to Reuters, these were the lowest closing prices for Brent since December 6 and for WTI since December 9.
OPEC+ has decided to proceed with its previously scheduled April oil production increase, which is expected to further influence global oil prices.
Impact on Nigerian Fuel Prices
Industry stakeholders in Nigeria’s downstream oil sector have identified crude oil prices and foreign exchange rates as key factors influencing the cost of refined petroleum products, including petrol.
Last week, the Dangote Refinery reduced its ex-depot petrol price from N890 per litre to N825 per litre, a move that sparked competitive pricing in the sector. The Nigerian National Petroleum Company Limited (NNPCL) quickly followed suit by matching Dangote’s price, leading to what some industry experts have termed a price war.
Economic Perspective on Price Reductions
Economist Paul Alaje has stated that the recent petrol price reductions are sustainable, suggesting that PMS prices could drop further to below N700 per litre based on current market conditions.
“It is sustainable to reduce petrol prices to N700 per litre based on today’s exchange rate reality. The only challenge we may have is if a global crisis drives crude oil prices up. If that happens, we will see price fluctuations. But for now, we are experiencing relative stability,” Alaje said in an interview on Channels Television.
He further noted that based on calculations, PMS should currently be priced between N795 and N820 per litre.
Ongoing Market Fluctuations
The National President of the Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), Billy Gillis-Harry, has also reiterated that petrol prices will continue to fluctuate in response to changes in the foreign exchange market and international crude oil prices.
Despite the recent price drops, lower crude oil prices translate to more affordable fuel for the average Nigerian. However, the current crude oil price remains below the $74 per barrel benchmark projected by the Federal Government in its 2025 budget, raising questions about the sustainability of current fuel pricing policies.
While falling crude oil prices and a stable naira have created room for a reduction in PMS prices, the future of fuel costs remains uncertain.
Market dynamics, geopolitical factors, and foreign exchange fluctuations will continue to play a crucial role in determining whether Nigerians will enjoy further relief at the pump.
