Why the price of fuel may increase despite falling oil prices

A few weeks ago, the Federal Government introduced a pricing model which allows the Petroleum Products Price Regulatory Agency (PPPRA) to modulate prices of petroleum products using a market-based pricing system. This meant that the price of fuel could go high or low depending on the market realities.

The pricing structure contributed to the reduction of fuel price from N145 to N125 per litre.

Although a temporary shift in the price of crude oil may not have a significant effect on the price of fuel, it is possible that market forces can make this happen. And in the case of Nigeria, the price of fuel may increase depending on the exchange rate approved by the Central Bank of Nigeria (CBN) to marketers for the importation of petroleum products.

With the dollar exchange rate inching closer to N400 per dollar, the price of fuel may increase to accommodate that change.

Explaining the outcome of the new arrangement, the Executive Secretary of PPPRA, Abdulkadir Saidu stated that prices will be monitored and adjusted according to market realities. To that effect, the agency will work with CBN to determine the availability and rate of foreign exchange in order to use that as a guide for pricing.

"This rate is reflected on the pricing template to determine the expected open market price of the product. This means that going forward, the guiding price to be advised will be determined based on the rates quoted by CBN," he said.

If the agency fails to work out a structure that will keep the price of fuel at its present cost, there's bound to be a price increase.

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