THE recent adjustment in petroleum product prices in Nigeria is largely driven by developments in the global energy market, particularly the sharp rise in crude oil prices triggered by escalating geopolitical tensions in the Middle East, the Centre for the Promotion of Private Enterprise (CPPE) has said.

In a policy brief released on Monday, CPPE’s Chief Executive Officer, Dr. Muda Yusuf, explained that global crude oil prices have surged from about $65 per barrel to over $100 per barrel within a few weeks, representing an increase of more than 50 percent.

According to him, crude oil is the most critical input in the production of refined petroleum products and accounts for the largest share of refinery production costs worldwide.

He noted that the spike in crude prices has driven up the cost of refined petroleum products globally, including premium motor spirit (petrol), diesel, aviation fuel and liquefied petroleum gas (LPG).

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Yusuf explained that because petroleum products are traded within a highly integrated global market, fluctuations in crude oil prices are often transmitted to domestic fuel prices in most countries, including Nigeria.

The CPPE chief also addressed public expectations that the existence of domestic refineries should automatically translate to significantly cheaper fuel.

He said the economics of refining suggests otherwise, explaining that crude oil supplied to refineries is priced using international benchmark prices and denominated in U.S. dollars, regardless of where the refinery is located.

As a result, he said domestic refineries in Nigeria procure crude oil at prices that reflect prevailing global market conditions.

Yusuf added that even crude supplied by local producers or the national oil company is priced using international benchmarks, while refineries typically pay an additional premium of between $3 and $6 per barrel to secure crude supply.

He explained that although some domestic crude transactions may be settled in naira under special arrangements, the valuation is still largely based on the naira equivalent of global crude oil prices.

This, he said, means that domestic refining operations remain significantly exposed to movements in global crude oil prices and do not enjoy any significant cost advantage in crude procurement.

According to him, while domestic refining can help improve product availability and supply stability, it cannot completely shield the domestic fuel market from global oil price volatility.

Yusuf noted that the major cost advantage of domestic refining lies in lower freight and logistics costs. He explained that importing petroleum products or crude oil usually involves significant expenses related to shipping, marine insurance, port handling, demurrage and other logistics charges.

These costs, he said, are considerably reduced when crude oil is sourced domestically and refined within the country, particularly during periods of global supply disruptions when freight rates tend to rise sharply.

Beyond cost considerations, Yusuf stressed that domestic refining plays a critical role in strengthening Nigeria’s energy security.

For decades, he said, Nigeria relied heavily on imported petroleum products despite being a major crude oil producer, a situation that exposed the country to supply chain risks and often resulted in fuel shortages and long queues at filling stations during periods of global supply disruption.

However, he noted that the emergence of significant domestic refining capacity is beginning to alter this pattern.

According to him, local refining enhances Nigeria’s ability to secure petroleum products within its borders, thereby reducing vulnerability to international supply shocks.

Yusuf also highlighted the significant implications of domestic refining for foreign exchange management and macroeconomic stability.

He said Nigeria historically spent between $10 billion and $15 billion annually on the importation of refined petroleum products, making fuel imports one of the largest sources of foreign exchange demand and putting considerable pressure on the country’s external reserves and exchange rate stability.

From importer to exporter

With the growth of local refining capacity, he said the need for large-scale fuel imports has declined, helping to conserve foreign exchange (FX), strengthen Nigeria’s external reserves, and improve the country’s balance of trade.

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He added that domestic refining also creates opportunities for Nigeria to export refined petroleum products to regional and international markets, thereby generating additional foreign exchange earnings.

According to him, the shift from being a major importer of refined petroleum products to a potential net exporter represents a significant structural improvement in Nigeria’s external sector outlook.

Yusuf further noted that domestic refining generates broader industrial and economic multiplier effects across the economy. He explained that refineries produce a range of intermediate products that serve as feedstock for industries such as petrochemicals, fertilisers, plastics, pharmaceuticals, paints and other chemical-based manufacturing sectors.

Industrial development

These linkages, he said, help strengthen Nigeria’s industrial ecosystem and promote deeper value addition within the economy.

In addition, he said the refining industry stimulates activity across the petroleum value chain, including storage, transportation, distribution, marketing and retail operations, thereby creating jobs and supporting economic growth.

Yusuf stressed that given the strategic importance of domestic refining to energy security, external sector stability and industrial development, government policies must remain supportive of investment in the sector.

He called for coordinated policy measures spanning trade, fiscal and monetary frameworks to sustain investments in refining.

Priority areas, he said, include ensuring reliable crude supply arrangements, strengthening petroleum distribution infrastructure, introducing tariff protection, encouraging additional refining investments and promoting export competitiveness for refined petroleum products.

According to him, while domestic refining may not completely eliminate the effects of global oil price volatility, it significantly reduces the risk of supply disruptions, conserves FX, strengthens the balance of trade and enhances national energy security.

He added that domestic refining therefore represents a strategic pillar for strengthening Nigeria’s economic resilience and ensuring long-term energy sustainability.