KEY POINTS
- Global crude oil prices still influence Nigeria’s fuel prices because crude oil and refined products are traded in an integrated international market.
- Domestic refining reduces logistics costs, import dependence, and supply risks, improving Nigeria’s energy security.
- Local refining helps conserve foreign exchange and support industrial growth, though it cannot fully eliminate fuel price volatility.
Nigeria’s growing domestic refining capacity may improve energy security and reduce dependence on imports, but it cannot completely shield the country from fluctuations in global fuel prices, according to the Centre for the Promotion of Private Enterprise, CPPE.
In a policy brief released on Monday, the Chief Executive Officer of the CPPE, Dr. Muda Yusuf, explained that Nigeria’s fuel prices remain influenced by global fuel market dynamics because petroleum products are traded in a highly integrated international market.
Yusuf noted that the recent changes in domestic fuel prices were largely driven by developments in the global energy market, particularly the sharp increase in crude oil prices triggered by rising geopolitical tensions in the Middle East.
Global Oil Market Still Determines Fuel Prices
According to Yusuf, petroleum products across the world are priced based on international crude oil benchmarks. This means that even countries with functional domestic refineries still feel the impact of global fuel price movements.
He explained that crude oil – the primary raw material used in producing refined petroleum products – is traded globally and priced in US dollars. As a result, refineries in Nigeria must purchase crude oil at international benchmark prices regardless of where they operate.
“Crude oil feedstock for refineries is priced using international benchmark prices and denominated in US dollars, irrespective of the location of the refinery,” Yusuf said.
Because of this global pricing structure, he said domestic refining alone cannot guarantee significantly cheaper fuel for consumers.
Yusuf highlighted that global crude oil prices have recently surged from about $65 per barrel to more than $100 per barrel, representing an increase of over 50 percent within a short period.
This surge, he explained, has pushed up the cost of refined petroleum products globally, including in Nigeria.
Since crude oil accounts for the largest share of refinery production costs worldwide, any sharp rise in its price automatically translates to higher refining costs and ultimately affects retail fuel prices.
