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Diesel May Trade for Closely N1500/litre as Oil Price Spikes

Diesel May Trade for Closely N1500/litre as Oil Price Spikes 

Given that the price of crude oil yesterday surged to a record high of $97 per barrel, the Federal Government will have to pay more in subsidies in the upcoming weeks for petrol. 

The current situation may cause diesel and aviation fuel prices to soar to close to $1500 per litre, which would cause manufacturers and business owners to experience a sharp increase in their cost of production.

As Brent traded for nearly $97 per barrel yesterday, the price of oil continued to grow and saw an increase of about 4%, maintaining analysts’ expectations that the price of the commodity would surge over $100 per barrel.

Although Nigeria should be elated about the success on the global market, the country’s complete reliance on imports for petroleum products and insufficient crude oil production make this trend worrying. Usually, the environment undermines any gains obtained from crude oil.

After President Bola Tinubu initially said that the subsidy had been eliminated, the Federal Government may have reinstated the subsidy payment on PMS.

When the government noticed a steady increase in the product, it returned to its original plan of employing the ostensibly commercialised Nigerian National Petroleum Company Limited to control market fluctuations and preserve its monopoly over the country’s downstream oil and gas business.

Nigeria consumes approximately 19.5 billion liters of petroleum products yearly, with about 99 percent of that consumption being petrol, while diesel and aviation fuel make up only about one percent.

Last month, the federal government paid N169.4 billion as subsidy to keep the pump price at N620 per litre.

A document by the Federal Account Allocation Committee (FAAC), sighted by our reporter yesterday, showed that in August 2023, the Nigerian Liquefied Natural Gas (NLNG) paid $275m as dividends to Nigeria via NNPC Limited. NNPC Limited used $220m (N169.4 billion at N770/$) out of the $275m to pay for the PMS subsidy. Then NNPC held back $55m, illegally.

Oil traders are reportedly scooping up crude as Saudi Arabia and Russia announced an extension of their combined 1.3 million bpd supply cut and traders stopped obsessing over demand in China, despite the fact that Russia had already closed its borders against export of diesel, a development that would keep a significant volume off the market.

183 million barrels of crude and gasoline futures were purchased by traders over the course of the last four weeks, despite JP Morgan’s prediction that the price of oil would reach $150 per barrel.

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