The Centre for the Promotion of Private Enterprise (CPPE) has provided insight into the recent adjustment in petroleum product prices in Nigeria, attributing the development largely to volatility in the global oil market and escalating geopolitical tensions in the Middle East that have driven a sharp rise in crude oil prices.
In a policy brief titled “Petroleum Products Pricing Dynamics Amidst Global Oil Market Volatility,” the Chief Executive Officer of the Centre, Dr Muda Yusuf, explained that crude oil, the primary input in the production of refined petroleum products, accounts for the largest share of refinery production costs globally. According to the organisation, crude prices have surged significantly in recent weeks—from about $65 per barrel to over $100 per barrel—representing an increase of more than 50 percent within a short period.
The policy institute noted that the spike in crude oil prices has inevitably pushed up the cost of refined petroleum products across global markets, including petrol, diesel, aviation fuel, and liquefied petroleum gas. Because petroleum products are traded within an integrated international market, fluctuations in crude oil prices are transmitted to domestic fuel prices in most economies, including Nigeria.
CPPE also addressed the widespread expectation that the presence of domestic refineries should automatically result in significantly cheaper petroleum products. The organisation explained that the economics of refining means this expectation may not always hold true, as crude oil feedstock for refineries is priced using international benchmark prices and denominated in U.S. dollars regardless of where the refinery is located.
According to the policy brief, domestic refineries in Nigeria procure crude oil at prices reflecting prevailing global market conditions. Even crude supplied by local producers or the national oil company is typically priced using international benchmarks. In addition, refineries often pay a premium of between $3 and $6 per barrel to secure crude supply. Although some transactions may be settled in naira under special arrangements, the underlying valuation remains largely tied to the naira equivalent of global crude prices. As a result, domestic refining operations remain exposed to global oil price movements and do not necessarily enjoy a price advantage in crude procurement.
However, CPPE noted that domestic refining offers some cost advantages through reduced logistics expenses. Importing petroleum products or crude oil involves significant costs related to shipping, marine insurance, port handling, demurrage, and other logistics charges. These costs are considerably reduced when crude oil is sourced domestically and refined locally, particularly during periods of global supply disruption when shipping costs and freight rates tend to surge.
Beyond cost considerations, the organisation emphasized that domestic refining significantly strengthens Nigeria’s energy security. For decades, Nigeria relied heavily on imported petroleum products despite being a major crude oil producer, a situation that frequently exposed the country to supply chain disruptions and fuel shortages. With the emergence of substantial local refining capacity, Nigeria’s ability to secure petroleum products within its borders has improved, reducing vulnerability to international supply shocks.
CPPE further highlighted the significant foreign exchange benefits associated with domestic refining. Historically, Nigeria spent between $10 billion and $15 billion annually importing refined petroleum products, placing considerable pressure on foreign exchange reserves and exchange rate stability. With the expansion of local refining capacity, the need for large-scale fuel imports has declined, helping to conserve scarce foreign exchange and strengthen the country’s external reserves position. The development also opens opportunities for Nigeria to export refined petroleum products to regional and international markets, potentially generating additional foreign exchange earnings.
The policy institute also pointed to the broader industrial benefits of refining activities. Refineries produce intermediate products that serve as feedstock for industries such as petrochemicals, fertilizers, plastics, pharmaceuticals, paints, and other chemical-based manufacturing sectors. These linkages help deepen industrial capacity within the economy while creating employment opportunities across the petroleum value chain, including storage, transportation, distribution, marketing, and retail.
To sustain investments in the refining sector, CPPE urged policymakers to maintain a supportive policy environment. The organisation recommended a coordinated approach involving trade, fiscal, and monetary policies to encourage domestic refining. Key priorities should include ensuring reliable crude supply arrangements, strengthening petroleum distribution infrastructure, introducing appropriate tariff protection, encouraging further refining investments, and promoting export competitiveness for refined petroleum products.
CPPE concluded that while domestic refining may not completely eliminate the impact of global oil price volatility, it significantly reduces the risks of supply disruptions, conserves foreign exchange, strengthens the balance of trade, and enhances national energy security. According to the organisation, domestic refining therefore represents a strategic pillar for improving Nigeria’s economic resilience and ensuring long-term energy sustainability.
