Inflation woes: Diesel prices hit N870, as OPEC+ production cuts, refinery constraints
Oredola Adeola
The prices of Diesel, Premium Motor Spirit (petrol) and other fuels have been on the rise across economies as the world’s oil refiners are struggling to produce enough petroleum products to meet global demand, this is in combination with ongoing crude production cuts announced by Saudi Arabia, Russia and its OPEC⁺ allies, and constrained refinery capacity in Europe.
The rising cost of diesel in Nigeria could lead to higher prices for longer, which could affect inflation and infrastructure under President Bola Tinubu. Consumer prices in Nigeria rose by more than expected in August, driven by higher costs for rent and fuel.
The inflation rate in Nigeria climbed to a fresh 18-year high of 25.8% in August due to surging transport costs even as the cost of petrol jumped by 176% year to date.
The price hike in Diesel is ongoing in contrast to the efforts of the Nigerian National Petroleum Company Limited (NNPCL), which has been trying to avert any further hike in the pump price of Premium Motor Spirit (petrol) while free the prices of other products to react to market dynamics, amidst the rising cost of crude oil and forex exchange volatility.
The price of diesel in Nigeria has increased significantly in the last few weeks of September 2023, from around N600 per litre to between N850 and N870 per litre in some states, including Lagos, Ogun, and Abuja.
This price hike is expected to cause inflationary pressure on the country since most manufacturers and transporters rely on diesel for their operations. The situation is further compounded by the fact that fuel prices have tripled in Nigeria, squeezing millions who are already struggling.
EnergyDay’s checks showed that diesel prices are rising faster than petrol prices due to supply concerns, and the spread between the two is the widest ever.
Refinery margins hit the highest level in eight months in August, as refiners were struggling to keep up with oil demand growth, especially for middle distillates, the International Energy Agency (IEA) said in its latest monthly report.
Data obtained from globalpetrolprices.com revealed that diesel is N844.28 per litre, as of 11-Sep-2023. In comparison, the average price of diesel in the world for this period is N975.68.
The Nigerian National Petroleum Company Limited (NNPCL) and the Presidency have repeatedly assured Nigerians that there is no intention of increasing the retail price of petroleum. However, there are concerns that the government is secretly servicing the price differentials.
According to him, the price of diesel fluctuates based on global market factors, and Nigerians should look for alternatives regardless of the impact of the commodity on inflation.
Chinedu noted that most manufacturers are running their operations on natural gas, and companies should plan along with alternative energy sources.
He said, “For example, BUA Cement and Dangote are running their factories on natural gas, and their trucks are now operating on Compressed Natural Gas (CNG) which is cheaper compared to other fuels. Some manufacturers who have now realised the impact of energy cost on their output are now converting their diesel machines to gas, while others are using coal.
Dr. Boniface Chizea, the Chief Executive Officer of BIC Consultancy Services, the margins are so low and there are no incentives for global refineries to produce petroleum products, including diesel, petrol and other fuels, which is responsible for the hike in the price of the commodities in Nigeria.
He said, warned that the impact of this situation may not immediately affect the cost of goods and services, but it will affect transportation, and the cost will be passed on to the cost of goods and services.
Dr Chizea also noted that gas, as an alternative fuel, is not readily available, as most of what is sourced locally are flared away by oil exploration and production companies because the penalties are not punitive enough.
He suggested that the Nigerian government should support the Dangote Refinery to come onstream as promised, especially considering the fact that the government already agreed to a 20% equity stake in the refinery.
Dr. Chizea therefore urged the government to focus on getting all refineries in the country to start producing to ease the pressure currently facing forex.
He emphasized that if Nigeria can take up 30 per cent demand for PMS and diesel from the Dangote Refinery, the priority demand for foreign exchange will slow down, and Nigeria will not need to negotiate for foreign exchange through terrible means.
The Chief Executive Officer of BIC Consultancy Services suggested that if the local refineries are working the inflow of forex will increase, and demand for importation can be reduced effectively and sustainably to make forex supply last.
