Key points
- Petroleum experts say lower global crude oil prices do not immediately result in cheaper petrol at filling stations.
- They attribute the delay to inventory costs, refining cycles, exchange rate movements and other market factors.
- The experts say competition, not government directives, determines prices under the Petroleum Industry Act (PIA).
- They urge government to strengthen domestic refining, competition and exchange rate stability to achieve sustainable price reductions.
Main story
Two petroleum industry experts have said declining global crude oil prices do not automatically translate into immediate reductions in the pump price of Premium Motor Spirit (PMS), citing inventory costs, refining cycles and prevailing market conditions.
The experts spoke separately with the News Agency of Nigeria (NAN) in Lagos.
They explained that under Nigeria’s deregulated downstream petroleum market, government intervention is limited to promoting fair competition through the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) and the Federal Competition and Consumer Protection Commission (FCCPC).
A former Managing Director of 11 Plc, Mr Tunji Oyebanji, attributed the delay largely to the time required for lower-priced crude oil to move through the refining, distribution and retail supply chain.
According to him, crude currently being processed by refineries was purchased when international oil prices were higher.
He explained that lower-priced crude must first be purchased, transported, refined and distributed before consumers could benefit from reduced pump prices.
Oyebanji noted that pump prices typically rise faster when crude oil prices increase because refiners require additional funds to purchase subsequent crude cargoes at higher prices.
He added that when crude prices decline, refiners and marketers still need time to sell products produced from higher-cost inventories before lower-priced products reach the market.
The former oil executive acknowledged that sharp practices could occur but expressed confidence that competition would eventually compel marketers to reduce prices as cheaper products became available.
He also supported limited fuel importation to sustain competition and improve efficiency among domestic refiners.
Also speaking, Prof. Wumi Iledare, Professor Emeritus of Petroleum Economics and Policy Research at the Centre for Energy Studies, Louisiana State University, said crude oil prices were only one of several factors influencing retail petroleum prices.
He listed refining costs, freight, insurance, storage, distribution, exchange rate movements, financing costs, taxes, regulatory charges and marketers’ operating expenses as additional determinants of pump prices.
According to Iledare, petroleum markets often experience what economists describe as asymmetric price transmission, where prices rise faster than they decline.
He said marketers usually exhausted products purchased at higher costs before passing the benefits of lower crude prices to consumers.
Iledare also identified exchange rate volatility as a major pricing factor, noting that petroleum products and many production inputs are denominated in U.S. dollars.
He explained that crude oil prices and refined petroleum product prices do not always move in the same direction because refining margins, seasonal demand, supply disruptions and product availability also influence market prices.
The professor said the Petroleum Industry Act provides for a deregulated downstream market where competition, rather than government directives, determines petroleum product prices.
He added that sustainable reductions in pump prices would depend on exchange rate stability, increased domestic refining capacity, efficient logistics, stronger market competition and consistent government policies.
Iledare further warned that a sustained decline in Nigeria’s monthly oil export earnings could weaken foreign exchange inflows, reduce government revenue, put pressure on the naira and increase borrowing requirements.
He, however, said the Petroleum Industry Act had strengthened Nigeria’s fiscal framework through a value-based royalty system, while stressing that improving oil production and operational efficiency remained critical to boosting national revenue.
The issues
Although international crude oil prices have softened in recent weeks, retail fuel prices often respond with a lag because refiners and marketers first sell inventories acquired at earlier, higher prices. Exchange rate volatility, logistics costs and refining margins also continue to influence domestic pump prices under Nigeria’s deregulated market.
What’s being said
“Cheaper crude must first be purchased, transported, refined and distributed before consumers could benefit from lower pump prices.” — Tunji Oyebanji
“Petroleum prices typically exhibit what economists describe as asymmetric price transmission, where prices rise more quickly than they decline.” — Prof. Wumi Iledare
What’s next
Industry observers expect pump prices to adjust gradually if global crude prices remain subdued, domestic refining capacity expands and exchange rate conditions remain stable. Regulators are also expected to continue monitoring the market to ensure healthy competition and prevent anti-competitive practices.
Bottom line
The experts say lower crude oil prices alone are not enough to bring down petrol prices immediately, arguing that inventory costs, exchange rates and market competition ultimately determine how quickly consumers benefit.
