ECONOMY & POLICY
You visit a filling station on Monday and petrol costs one amount. A few days later, the price has increased. Sometimes it falls again, even though nothing obvious has changed.
For millions of Nigerians, these fluctuations affect everything from transportation fares to food prices.
But who actually determines the price of petrol, and why does it change so frequently?
Petrol prices in Nigeria change because they are largely determined by market conditions rather than a fixed government price. Global crude oil prices, the naira's exchange rate, refining costs, transportation expenses, and competition between suppliers all influence what consumers pay at filling stations. Since the removal of petrol subsidies in 2023, changes in these costs have had a more direct impact on pump prices.
Who Determines Petrol Prices in Nigeria?
Before 2023, the Federal Government subsidised petrol to keep retail prices below their full market cost.
Following the removal of the subsidy, Nigeria moved towards market-based pricing, meaning suppliers and marketers generally determine their selling prices based on costs and market conditions.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) oversees the industry but does not normally set a uniform petrol pump price.
This means different filling stations can charge different amounts depending on where they purchase their fuel and their operating costs.
Why Do Global Oil Prices Matter?
Petrol is produced by refining crude oil, which is traded internationally.
When global crude oil prices increase, the cost of producing petrol can rise. Refineries and importers may then adjust their selling prices.
Global events, including conflicts, supply disruptions, and changes in oil production, can influence crude prices.
Even though Nigeria produces crude oil, it is still affected by international prices because crude oil and refined petroleum products are traded in global markets.
How Does the Naira Affect Petrol Prices?
The exchange rate is another important factor.
Crude oil and refined petroleum products are often priced in US dollars. When the naira weakens against the dollar, Nigerian businesses may need more naira to purchase the same quantity.
Explained Simply: Imagine a fuel importer buying petrol worth $1,000. At ₦1,000 per dollar, the cost is ₦1 million. If the exchange rate changes to ₦1,400 per dollar, the same purchase costs ₦1.4 million, even though the dollar price hasn't changed.
That additional cost can eventually be reflected in what consumers pay.
Shouldn't Local Refineries Make Petrol Cheaper?
Local refining can reduce Nigeria's dependence on imported petrol and some associated transportation costs.
However, producing petrol locally doesn't automatically mean prices will remain low.
Refineries still have to purchase crude oil, maintain equipment, pay workers, and cover operating expenses.
The cost of crude oil and exchange-rate movements can therefore influence prices even when petrol is refined within Nigeria.
Why Are Petrol Prices Different Across States?
Transporting petrol from refineries or depots to filling stations costs money.
A station located far from a major supply point may face higher distribution expenses than one closer to the source.
Storage, operating costs, local competition, and supply availability can also affect the final pump price.
This helps explain why petrol can sell at different prices in Lagos, Abuja, Kano, and other parts of the country.
Petrol prices in Nigeria are influenced by several connected factors, including global oil markets, exchange rates, refining costs, and transportation expenses. Local refining and stronger competition may help improve supply and reduce some costs, but they cannot completely eliminate price fluctuations. Understanding these factors explains why petrol prices can change even when Nigeria's domestic oil production remains relatively stable.