Fuel Price Hike Looms as Naira Depreciation Eats into Gains of Falling Oil Prices

Fuel marketers in Nigeria are drawing attention to the potential escalation of gasoline prices at fuel stations due to the ongoing depreciation of the naira against the US dollar. This concern persists even in the face of a minor weekly moderation in crude oil prices.

The domestic currency’s decline against the US dollar, especially on the unofficial market, is evident as it dropped from 920 naira per dollar on the parallel market the previous Friday. This situation has prompted apprehensions regarding the sustainability of current gasoline price levels.

Local oil traders have indicated that during the period when petrol costs ranged between N590/liter and N617/liter, the exchange rate was roughly situated between N750 to N800 per dollar.

They have now estimated the cost to be in the range of N680/litre to N700/litre for PMS based on the N920/$ exchange rate. 

Oil prices are heading for a second week of losses, despite a rise on Friday, as the dollar steadied in anticipation of a speech by Federal Reserve Chairman Jerome Powell. Concerns about tight supply have eased to some extent. 

Oil traders have recently turned bearish due to media reports quoting Iran’s Oil Minister, who stated that the market is closely monitoring Iran’s oil flows.  

The country’s crude oil production is expected to reach 3.4 million bpd by the end of September, even if US sanctions remain in effect. Crude oil prices for the week are expected to decline between 1.2% and 2.2%, marking the second consecutive week of decreases. 

Furthermore, currency traders are trading cautiously ahead of Powell’s remarks at the Jackson Hole symposium. This cautious approach has driven the safe-haven dollar to a 10-week high, resulting in its largest one-month gain. A stronger dollar also increases the cost for Nigeria’s petrol marketers to import oil. 

The dollar received a boost before the start of the Jackson Hole event due to a slight change in Fed futures prices. These changes now indicate a probability of over 50% for another Fed rate hike to a range of 5.5% to 5.75% next month. 

To ensure clarity, FX traders are speculating that the latest US economic data shows no signs of weakening. Jobless claims fell below last week’s forecasts, and core durable goods orders remained flat as of July. 

President Bola Tinubu has instructed that there be no increase in fuel prices, according to Ajuri Ngelale, the president’s special adviser on communications and advertising. Ngelale spoke to reporters at the State House last week, stating,

• “The President wishes to assure the people of Nigeria, following the announcement made yesterday by NNPC Limited (Monday), that PMS pump prices will not increase anywhere in the country. We reiterate that the President has confirmed that he will not raise the price of PMS at the pumps.” 

NNPC Limited also addressed widespread concerns last week about the potential for gas prices at pump stations to rise.