THE Federal Government’s latest intervention in the fuel pricing debate is both timely and necessary. When the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, and the Federal Competition and Consumer Protection Commission insist that petrol pump prices should reflect the recent decline in global crude oil prices, they are simply demanding fairness for consumers.
When geopolitical tensions between the United States, Israel and Iran pushed crude oil prices sharply higher, reaching $126 per barrel earlier this year, fuel prices in Nigeria rose immediately. Retail petrol prices surged from roughly N800–N900 per litre to as much as N1,350–N1,500 per litre in some locations.
Yet, now that tensions have eased, the Strait of Hormuz remains open, and Brent crude has fallen back toward the low-$70-per-barrel range; consumers are still paying around N1,140–N1,250 per litre. This should not be the caseThe FCCPC quickly flagged this disconnect. Executive Vice-Chairman/CEO Tunji Bello rightly noted that while “dealers often respond swiftly by hiking pump prices whenever crude prices rise, it is curious that it is taking forever for consumers to benefit significantly when crude prices fall. Competitive markets must work fairly in both directions”.
Significantly, this position mirrors concerns being expressed by United States President Donald Trump, who recently warned gasoline retailers of “problems” if they failed to lower prices in line with falling crude oil costs, describing excessive delays as potential price gouging.
The US Treasury Secretary has also echoed concerns over retailers failing to pass lower crude costs to consumers. The message from both Washington and Abuja is simply that deregulation is not a licence for exploitation.
However, the reality is more complicated than political statements suggest.
Fuel prices do not move in perfect lockstep with crude oil prices. Economists describe the phenomenon as “rockets and feathers” in reference to a situation where prices shoot up like rockets when costs rise but drift down like feathers when costs fall.
Mathematical modelling helps explain why.
Assuming that crude oil trades at $80 per barrel, the exchange rate is N1,500 per dollar, and local logistics, distribution, financing, regulatory and retail costs amount to about N350 per litre. Under those assumptions, the pump price could be around N1,293 per litre.
If crude oil falls from $80 to $70 per barrel while all other variables remain unchanged, the model suggests pump prices could decline by roughly N118 per litre.