The cost of crude oil has risen significantly, and the depreciation of the Nigerian naira against the US dollar may result in an increase in the pump price of Premium Motor Spirit (PMS), commonly known as petrol, according to oil marketers. The surge in crude oil prices, which reached about $94 per barrel, coupled with ongoing foreign exchange challenges, has led to increased spending on petrol subsidies by the Nigerian government.
Dealers in the downstream oil sector explained that over 80% of the cost of PMS is influenced by the cost of crude oil and the exchange rate of the dollar. Brent crude, the global benchmark for oil, has risen sharply in 2023, starting the year at around $82 per barrel and recently exceeding $92 per barrel. Additionally, the Nigerian naira has weakened significantly, trading at N950 to the US dollar on the parallel market.
While the Nigerian government has claimed to have ended fuel subsidies following the deregulation of the downstream oil sector, operators argue that the government is effectively implementing a quasi-subsidy. With the recent surge in crude oil prices and the depreciation of the naira, the cost of PMS is expected to increase. If the government continues to maintain the petrol price at N617 per liter, it would imply a quiet return of the fuel subsidy.
Marketers believe that the gap between the actual cost of petrol and the government-regulated price is widening, and the government is indirectly subsidizing petrol due to the increase in crude oil prices and the depreciation of the naira. This quasi-subsidy is putting pressure on the finances of oil marketers and making it difficult for them to remain competitive.
Despite the government’s assertion that it has ended fuel subsidies, the recent developments in crude oil prices and foreign exchange challenges have reignited concerns about the true status of subsidies in the Nigerian petroleum industry.