Factors That Determine Retail Prices of Petrol in Nigeria

On a global scale, the factors that determine the prices of petrol vary from country to country. However, there are common factors that determine the retail prices of petrol/gasoline crude oil price, refining cost & profits, distribution & marketing, and taxes. In other words, the laws of economics - Demand & Supply pull play here.

The average price of petrol, according to globalpetrolprices.com, differs across countries. She reported that the prices around the world are at an average of $1.44 per litre. However, there is a substantial difference in these prices among countries. In comparison, the prices are lower in poorer countries, but higher in richer countries, with the exception of the US, who subsidizes the rate for its citizens.

However, in Nigeria, there are other factors that affect the prices of this special product. Oil, being the mainstay of the Nigerian economy, determines to a large extent the prices of several commodities in the nation. In this article, we would consider 3 determining factors to the prices of petrol in Nigeria, especially in the face of the current scarcity that emerged across a number of states in Nigeria.

1. Exchange rate: Nigeria is both an oil-exporting and oil-importing nation, due to our lack of refineries. The challenge of accessing forex definitely affects imports, because over 90 per cent of petrol that is consumed across the nation is imported. Hence, the cost of refining, and importation is based on forex. This largely determines the retail prices of petrol in Nigeria. According to the Petroleum and Natural Gas Senior Staff Association of Nigeria (Pengassan), the greatest problem with oil prices in Nigeria is the exchange rate.

2. Oil importation: Currently, Nigeria imports most of its consumed refined petroleum products because we do not have our refineries running. This also affects the cost of the end product that is made available to end-users. According to PENGASSAN, refining within the nation would affect the pricing of the product in Nigeria (but not significantly), as the logistics cost would be spared since big mother vessels wouldn't be needed to transport the products.

So, that may reduce the price. But 80 per cent, if not more, of the cost of PMS, is reflected in the international prices of crude oil.

3. Government policies: This comes in form of subsidies and import regulations. Currently, the official pump price of PMS in retail across the federation is regulated by the FG. The official price currently stands at N165/litre. This simply implies that incurred product cost by government-approved petroleum product marketer which is above N165/litre is paid by the FG. However, some marketers in Nigeria have added N10/litre, and sell the product at N175/litre to cover logistics and other costs. Despite the fluctuations in the international market, the Federal Government of Nigeria is obligated to pay the product price differentials (Going by the existing subsidy regime). Official statement from the helmsman of NNPC Ltd. Mr Mele Kyari (in an interview published by the Punch) stated that the government pays over N160/litre (in subsidy) to marketers in order to make the product available at a comparatively lower rate for Nigerians. According to major oil importers, a litre of petrol is over N300.

Furthermore, retail prices of refined petroleum products such as (PMS), can also be determined by import regulations as was the case during the onset of the current administration. The NNPC was made the sole importer of refined petroleum products. This helped in checkmating the retail price of PMS across the country. As major oil marketers & retail station operators, had to directly buy from the NNPC & affiliate depots across the country. All these affect the pump prices of the product.

However, Masters Energy Ltd., being a major licensed distributor, sells petrol at the official prices across all our retail outlets, as regulated by the departments of the government involved. Visit any of our retail stations across Nigeria for excellent service delivery.

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