Brent crude is closing in on $100 per barrel as renewed conflict in the Middle East threatens global oil supplies, raising fresh concerns over petrol prices in Nigeria.
This is coming amid assurances by the country’s downstream regulator, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) that domestic refining would bring more sustainable relief for consumers.
Brent rose to $99.46 per barrel on Tuesday, its highest level since July 24, before easing to around $97, according to market data cited in reports on the latest escalation.
West Texas Intermediate also climbed sharply as traders assessed the potential impact of renewed attacks on oil infrastructure and shipping routes in the Middle East.
The surge comes at a sensitive time for Nigeria’s downstream market, where petrol prices have already been under pressure.
Recent increases in depot and gantry prices have pushed pump prices higher across several parts of the country, intensifying concerns that another sustained rise in international crude could feed into the domestic market.
The NMDPRA has, however, indicated that the longer-term answer to petrol price stability lies increasingly in the country’s ability to refine more crude locally and create a more competitive domestic supply market.
That position is significant in a market where petrol pricing is now deregulated and movements in international crude prices can influence the economics of refined petroleum products at home.
It also means that Nigeria’s growing refining capacity is being tested at a time when global oil markets are becoming increasingly volatile.
The Middle East tensions
The latest crude rally followed renewed attacks by Yemen’s Iran-backed Houthi group on targets in southern Saudi Arabia, including locations linked to the country’s energy infrastructure.
The attacks came amid the broader escalation involving Iran, the United States and Israel, with growing concerns over the security of oil facilities and shipping routes across the region.
Jazan, one of the locations reportedly affected, is home to a major refinery and power plant, while other targeted areas contain oil distribution facilities. Reports also indicated fires at affected sites and casualties from the attacks.
The developments have once again put the Strait of Hormuz at the centre of market concerns. The strategic waterway has historically carried about a fifth of global oil supplies, making any prolonged disruption potentially significant for crude prices and petroleum markets worldwide.
Trading Economics data showed crude prices remaining close to the $100 threshold as at close of market on Tuesday, reflecting the market’s heightened sensitivity to developments that could restrict production, exports or shipping.
The implications are, however, complicated for Nigeria. Higher crude prices can improve export earnings for an oil-producing country and potentially strengthen government revenues, especially as oil remains the country’s main source of government revenue as well as foreign reserves.
The same increase can also raise the cost of petroleum products and put pressure on consumers and businesses when international prices feed into domestic supply economics.
Domestic refining capacity
The NMDPRA has said consumers could begin to see more favourable petrol prices when the country’s refining ecosystem becomes more robust, competitive and sustainable.
The regulator’s position suggests that increased local refining could reduce the extent to which Nigerian consumers are exposed to international refined-product market pressures.
However, the downstream market is entering another important test because if international crude remains elevated, domestic refiners will have to balance the cost of crude feedstock against local petrol demand and selling prices, while marketers will continue to respond to changes in supply and replacement costs.