Fuel Price Surges Reflect Traders’ Expectations, Not Just Supply — Energy Expert
Market Expectations Driving Short-Term Price Changes
AN energy expert, Wumi Iledare, has attributed recent increases in petrol pump prices in Nigeria to market expectations and volatility in global crude oil prices rather than immediate supply shortages.
Iledare, a Professor Emeritus of Petroleum Economics and Policy Research at Louisiana State University’s Centre for Energy Studies, said fuel prices in the short term often react to anticipated costs in the market.
Speaking in an interview in Lagos, he explained that fuel marketers and depot operators typically adjust prices based on the expected cost of replacing their inventory.
“In the short run, market participants adjust prices based on what they expect future costs to be,” he said.
“When traders anticipate rising prices due to exchange-rate uncertainty, logistics expenses or global crude oil volatility, they increase pump prices defensively to avoid potential inventory losses.”
Role of Global Oil Market Uncertainty
The expert noted that global geopolitical developments are also influencing fuel prices.
According to him, rising tensions involving Iran and other Middle Eastern actors have pushed international crude oil prices higher.
He estimated that crude oil prices have risen by about seven to 10 percent within a week due to the heightened tensions.
“In import-dependent markets such as West Africa, such shocks typically translate into a five to eight percent increase in petrol prices because refined products track movements in crude oil benchmarks,” he said.
Impact on Nigeria’s Domestic Fuel Market
Despite recent government initiatives aimed at stabilising supply, petrol prices can still fluctuate due to market behaviour.
Iledare said the reaction of traders partly explains why pump prices sometimes increase even when policy measures such as the crude-for-naira arrangement involving NNPC Limited and the Dangote Refinery are introduced.
However, he noted that over time prices usually adjust to reflect real market fundamentals, including crude oil supply levels, refining capacity, exchange-rate stability and distribution costs.
Growing Importance of Local Refining
The energy expert said Nigeria’s expanding domestic refining capacity is beginning to offer some protection against global price shocks.
According to him, local refining reduces costs associated with freight, logistics and importation of refined petroleum products.
“With the Dangote Refinery processing domestic crude, part of the global price escalation can be absorbed through logistics savings, freight elimination and smoother supply,” he said.
He estimated that domestic refining could reduce the impact of external price shocks by roughly 20 percent.
“At least now, some of that pressure can be cushioned,” he added.
Production Constraints Limit Opportunities
While rising crude oil prices could encourage marginal oil fields in some parts of the world to resume production, Iledare warned that Nigeria may struggle to fully benefit from the opportunity.
He said persistent production challenges continue to limit the country’s ability to increase output even when global prices rise.
“Even when price opportunities emerge, Nigeria’s production limitations prevent the country from responding as strongly as it should,” he said.
Aligning Crude Supply With Domestic Refining
Iledare described the current situation as an opportunity for Nigeria to expand crude oil sales in naira to domestic refineries.
He noted that the country is not fully meeting its production quota under the Organization of the Petroleum Exporting Countries.
According to him, supplying more crude to local refineries could stabilise domestic fuel supply while strengthening the national currency.
“Domestic refining demand is growing, and aligning crude supply with local refining capacity can help stabilise both energy supply and the naira,” he said.
He added that expanding local refining capacity is not only about energy security but also about capturing greater economic value from Nigeria’s natural resources.
