Declining crude prices don’t guarantee cheaper petrol – Experts

Two petroleum industry experts have said that declining global crude oil prices do not automatically translate into immediate reductions in petrol pump prices. The experts said this in separately with the News Agency of Nigeria (NAN) on Monday in Lagos, citing inventory costs, refining cycles and other market fundamentals. They said under Nigeria’s deregulated downstream […]

Two petroleum industry experts have said that declining global crude oil prices do not automatically translate into immediate reductions in petrol pump prices.

The experts said this in separately with the News Agency of Nigeria (NAN) on Monday in Lagos, citing inventory costs, refining cycles and other market fundamentals.

They said under Nigeria’s deregulated downstream petroleum market, government intervention is limited to ensuring 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 mainly to the time required for lower-priced crude oil to move through the refining and distribution chain.

According to him, crude currently being processed by refineries was purchased when prices were higher.

He explained that cheaper crude must first be purchased, transported, refined and distributed before consumers could benefit from lower pump prices.

“Pump prices often rise faster when crude prices increase because refiners need sufficient funds to purchase their next cargo of crude at higher prices.

“When crude prices decline, refiners and marketers still have inventories purchased at higher costs.

“They need time to clear those stocks before lower-cost products begin to reflect at the pumps,” he said.

Oyebanji acknowledged that sharp practices could occur but said competition would eventually force prices downward as more lower-cost products entered the market.

He reiterated that government’s role in a deregulated market is to promote fair competition through the NMDPRA and FCCPC while preventing anti-competitive practices.

Oyebanji also supported limited fuel importation to sustain competition and encourage efficiency among local refiners.

Also, Prof. Wumi Iledare, Professor Emeritus of Petroleum Economics and Policy Research, Centre for Energy Studies, Louisiana State University, said crude oil prices were only one of several factors determining 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 pricing factors.

According to Iledare, petroleum prices typically exhibit what economists describe as asymmetric price transmission, where prices rise more quickly than they decline.

He said marketers often continued selling products purchased at higher prices before passing on the benefits of lower crude costs to consumers.

Iledare added that exchange rate volatility remained a major pricing factor in Nigeria because petroleum products and many production inputs were denominated in U.S. dollars.

He also noted that crude oil prices and refined petroleum product prices do not always move in the same direction, as refining margins, seasonal demand, global supply disruptions and product availability also influence prices.

The professor said the Petroleum Industry Act (PIA) provides for a deregulated market in which competition, rather than government directives, determines petroleum product prices.

He stressed that sustainable price reductions should reflect market realities without undermining supply or investment in the downstream sector.

According to him, affordable energy for Nigerians will require exchange rate stability, increased domestic refining capacity, efficient logistics, stronger competition and consistent government policies.

Iledare said a sustained decline in the monthly oil export earnings from about 5.4 billion dollars to 3.5 billion dollars could reduce foreign exchange inflows, weaken the naira, lower government revenue and increase borrowing.

He, however, said the Petroleum Industry Act had strengthened Nigeria’s fiscal framework through a value-based royalty system.

Iledare added that improving oil production and operational efficiency remained critical to boosting national revenue. (NAN)