In the upcoming weeks, the Federal Government will have to pay more in subsidies for premium motor spirit (PMS), often known as gasoline, since the price of crude oil reached a record high of $97 per barrel yesterday.
Due to the current circumstances, manufacturers and company owners may also experience an exponential increase in their cost of production, with the price of aviation and diesel fuel potentially reaching close to $1500 per litre.
Oil prices have been rising steadily, and yesterday saw a four percent increase as Brent traded for almost $97 barrels, maintaining the optimism of analysts who think the commodity could surge over $100 per barrel.
Nigeria should be happy about its success in the global market, but the country’s failure to produce enough crude oil and its complete reliance on imports for petroleum products make this development concerning. Usually, the circumstances degrade any profit derived from crude oil.
It’s possible that the federal government reimbursed PMS subsidies after President Bola Tinubu first declared that the subsidies were no longer available. After observing the steady increase in the product, the government went back to its original plan, which involved utilising the ostensibly commercialised Nigerian National Petroleum Company Limited to control market fluctuations and preserve its monopoly over the country’s downstream oil and gas sector.
Nigeria uses roughly 19.5 billion liters of petroleum products annually, of which Premium Motor Spirit (PMS) accounts for 99 percent. Diesel and aviation fuel account for the remaining 1 percent.
The federal government maintained the pump price at N620 per litre last month by providing a subsidy of N169.4 billion.
Our correspondent was able to view a Federal Account Allocation Committee (FAAC) document yesterday that revealed the Nigerian Liquefied Natural Gas (NLNG) had paid $275 million in dividends to Nigeria through NNPC Limited in August 2023. Of the $275 million, NNPC Limited spent $220 million (N169.4 billion at N770/$) to cover the PMS subsidy. Then, NNPC unlawfully withheld $55 million.
Russia had already closed its borders to the export of diesel, which would have removed a large amount of volume from the market. However, traders are reportedly buying up crude as a result of Saudi Arabia and Russia extending their joint supply cut of 1.3 million barrels per day, and they have reportedly stopped worrying about Chinese demand.
During the previous four weeks, traders purchased a total of 183 million barrels of crude and gasoline futures, despite JP Morgan’s prediction that the price of oil would reach $150 per barrel.