As the global oil market experiences a surge in crude prices, reaching $97 per barrel yesterday, the Nigerian government faces a dilemma of increasing its subsidy spending on petrol or allowing the pump price to rise above N620 per litre.
The rising crude prices also pose a threat to the manufacturing and aviation sectors, as the cost of diesel and aviation fuel may soar to nearly $1500 per litre, affecting their operations and profitability.
The Brent crude, the international benchmark for oil prices, gained about four per cent yesterday, raising the expectations of analysts who predict that it will soon surpass $100 per barrel.
However, Nigeria, a major oil producer and exporter, cannot fully benefit from this favourable trend due to its low crude output and heavy reliance on imported petroleum products. This situation often cancels out the revenue gains from high oil prices.
The government had earlier announced the removal of subsidy on petrol, following President Bola Tinubu’s declaration, but later reversed its decision in the face of public outcry and market instability. The government then entrusted the newly commercialised Nigerian National Petroleum Company Limited with the task of managing the subsidy scheme and regulating the downstream sector of the oil and gas industry.
According to official data, Nigeria consumes about 19.5 billion litres of petroleum products annually, with petrol accounting for 99 percent of that figure, while diesel and aviation fuel make up only one percent.
Last month, the government paid N169.4 billion as subsidy to keep the petrol price at N620 per litre, but this amount may increase significantly in the coming weeks as crude prices continue to rise.
According to a Federal Account Allocation Committee (FAAC) document seen by reporters, Nigeria received $275m in dividends from NLNG via NNPC Limited in August 2023. Out of this amount, NNPC Limited spent $220m (N169.4 billion at N770/$) to subsidize the PMS. The remaining $55m was withheld by NNPC, unlawfully.
Meanwhile, Russia had banned the export of diesel, reducing the supply in the market. Oil traders had also increased their demand for crude as Saudi Arabia and Russia agreed to prolong their 1.3-million-bpd joint production cut, and traders stopped worrying about demand in China.
JP Morgan predicted that oil price would reach $150 per barrel in the next four weeks, as traders had purchased a total of 183 million barrels of crude and fuel futures.