Nigeria Takes Hits from Global Oil Price Shock Despite Dangote, other Local Refineries’ Huge Capacities

The Centre for the Promotion of Private Enterprise (CPPE) has said the recent adjustments in petroleum product prices in Nigeria reflect developments in the global oil market, particularly the sharp surge in crude prices which have now climbed above $100 per barrel.

In a policy brief issued on Monday, the Chief Executive Officer of the organisation, Muda Yusuf, explained that despite the emergence of local refining capacity, including the Dangote Refinery, Nigeria cannot be fully insulated from global price shocks because crude oil, the primary input for refined petroleum products, is priced according to international benchmarks.

According to the think tank, global crude oil prices have surged in recent weeks from about $65 per barrel to over $100 per barrel, representing an increase of more than 50 per cent within a short period.

The development, it said, has pushed up the cost of refined petroleum products such as premium motor spirit, diesel, aviation fuel and liquefied petroleum gas across international markets.

Since the war broke out in the Middle-East, the pump price premium motor spirit (PMS), popularly known as petrol, has jumped by more than 40 per cent to sell at above N1,200 in some Nigerian states.

“The recent adjustment in petroleum product prices in Nigeria reflects developments in the global energy market, particularly the sharp rise in crude oil prices triggered by escalating geopolitical tensions in the Middle East,” Yusuf said.

“This development has pushed up the cost of refined petroleum products across global markets, including premium motor spirit, diesel, aviation fuel and liquefied petroleum gas,” Yusuf noted, adding that because petroleum products are traded within an integrated global market, fluctuations in crude oil prices are inevitably transmitted to domestic fuel prices in most economies, including Nigeria.

The organisation explained that although there is widespread expectation that the emergence of domestic refineries should automatically translate into cheaper petroleum products, the economics of refining suggests otherwise.

“There is a widespread expectation that the presence of domestic refineries should automatically translate into significantly cheaper petroleum products. However, the economics of refining suggests otherwise,” Yusuf stated.

He explained that crude oil feedstock for refineries is priced using international benchmark prices and denominated in United States dollars irrespective of where the refinery is located.

“Consequently, domestic refineries in Nigeria procure crude oil at prices that reflect prevailing global market conditions,” he said.

Yusuf added that even crude supplied by local producers or the national oil company is priced using international crude oil benchmarks, while domestic refineries often pay a premium of between three and six dollars per barrel to secure supply.

“This means that domestic refining operations remain substantially exposed to global crude oil price movements with no price advantage in crude procurement,” he said.

Energy Security and Foreign Exchange Gains

Despite these limitations, the CPPE said domestic refining offers significant strategic advantages, particularly in strengthening Nigeria’s energy security and improving the country’s external sector.

“The main cost advantage of domestic refining lies in reduced freight and logistics costs,” Yusuf said, explaining that importing petroleum products or crude oil involves major expenses relating to shipping, marine insurance, port handling and demurrage.

He added that the emergence of domestic refining capacity is beginning to address long standing supply vulnerabilities in Nigeria’s fuel market.

“For decades, Nigeria relied heavily on imported petroleum products despite being a major crude oil producer. This paradox exposed the country to significant supply chain risks and frequently resulted in fuel shortages and long queues at filling stations,” he said.

According to him, domestic refining enhances Nigeria’s ability to secure petroleum products within its own borders and reduce exposure to international supply disruptions.

Yusuf also highlighted the implications for foreign exchange management, noting that Nigeria historically spent between 10 billion dollars and 15 billion dollars annually on the importation of refined petroleum products.

“With the expansion of local refining capacity, the need for large scale fuel imports has declined significantly. This has helped to conserve scarce foreign exchange, strengthen Nigeria’s external reserves position and improve the country’s balance of trade,” he said.

He added that domestic refining also creates opportunities for Nigeria to export refined petroleum products to regional and international markets, thereby generating additional foreign exchange earnings.

“While domestic refining may not completely eliminate the effects of global oil price volatility, it significantly reduces the risks of supply disruptions, conserves foreign exchange and enhances national energy security,” Yusuf said.