- Petrol slightly cheaper, but little else is
- Cost of living crisis continues in households
- Economist blame institutional weakness
- Nigeria experiencing price stickiness
For millions of Nigerians, the laws of economics appear to work only in one direction. When petrol prices rose from about N800 per litre to as high as N1,450 following the geopolitical crisis involving the United States, Israel and Iran, the consequences were immediate and unforgiving. Transport fares doubled in some cities. Food prices rose almost overnight. Manufacturers increased production costs, logistics firms revised tariffs, and virtually every service provider, from artisans to ride-hailing operators, passed the higher fuel costs directly to consumers.
The ripple effect travelled through every layer of the economy with remarkable speed. Today, the reverse is happening in global oil markets.
Crude oil prices have retreated to around $70 per barrel, easing from the elevated levels recorded during the Middle East crisis. The Dangote Petroleum Refinery has responded with successive reductions in its ex-depot petrol price, cutting the gantry price from N1,175 to N1,125 per litre before reducing it again to N1,075 per litre within days.
In theory, Nigerians should now be seeing some relief. Instead, transport fares remain largely unchanged. Market prices have barely moved. Restaurants, logistics companies and service providers continue charging the same rates introduced during the fuel price spike.
For ordinary Nigerians already battling inflation, stagnant incomes and declining purchasing power, one question has become increasingly unavoidable: Why do prices rise immediately when petrol becomes more expensive but refuse to fall when petrol becomes cheaper?
The answer lies at the intersection of economics, market structure, inflation, competition, regulation and perhaps most importantly, psychology.
Before the outbreak of hostilities involving the United States, Israel and Iran, petrol sold for between N800 and N840 per litre across much of Nigeria.
Then came fears surrounding the possible disruption of oil supplies through the Strait of Hormuz, one of the world’s busiest shipping corridors.
Global crude prices climbed rapidly. Nigeria, despite being an oil-producing nation, was not insulated.
Once international oil market tensions filtered into Nigeria’s downstream sector, domestic prices adjusted rapidly. Depot prices surged, pump prices followed, and motorists found themselves paying between N1,100 and N1,450 per litre. Because fuel is a critical input across the economy, the increase triggered a chain reaction, driving up logistics, production and distribution costs and compelling businesses to reprice goods and services within days.
Meanwhile, as diplomatic efforts eased tensions and crude oil prices retreated, the expected market correction began. Dangote Refinery announced a series of ex-depot price reductions. Each announcement was welcomed by consumers eager for cheaper fuel.
The fuel crisis may have eased, but the household crisis has not.
Petrol prices have retreated from their recent highs, yet the relief many Nigerians anticipated has failed to reach supermarket shelves, transport parks or family budgets, where the cost of everyday living remains painfully high.
Transporters say mathematics still doesn’t work
Commercial drivers argue that consumers are focusing on one cost while ignoring dozens of others.
Kolade Samuel, a commercial driver in Lagos, says the reductions simply aren’t enough.
“The reduction is not so significant. I’m hoping for a bigger reduction because the economy keeps getting worse,” he said.
Another operator, Funsho Akinlade, explains why transport fares have remained largely unchanged.
“Fuel is only one part of our expenses. Yes, petrol has reduced slightly, but spare parts haven’t. Tyres haven’t. Engine oil hasn’t. Vehicle servicing hasn’t. At N1,260 per litre, we were barely surviving. Now it’s around N1,160. That N100 difference doesn’t change much.”
Their concerns are echoed across Nigeria’s transport industry. Petrol has become slightly cheaper, but little else has. Mechanics still charge higher rates. Spare parts remain expensive. Insurance premiums have climbed.
Road levies have increased, while the prices of lubricants and vehicle servicing continue to reflect inflation-era costs. For many operators, lower fuel prices alone are insufficient to justify reducing transport fares.
Economists describe what Nigeria is experiencing as price stickiness. Simply put, prices tend to rise quickly when costs increase but fall slowly when costs decline.
The phenomenon is hardly unique to Nigeria. Economists refer to it as asymmetrical price transmission.
Wumi Iledare, professor emeritus of Petroleum Economics, summarises it succinctly:
“Crude up, prices take the elevator. Crude down, prices take the staircase.”
The principle applies across global energy markets. Businesses facing rising costs react immediately to avoid losses. When costs decline, however, many delay passing on the savings.
Some seek to recover earlier losses. Others wait for greater certainty. Some simply retain higher profit margins.
Nigeria’s inflation environment has further complicated matters.
When inflation becomes persistent, businesses begin pricing not only today’s costs but tomorrow’s uncertainties.
A trader who lowers prices today risks replacing inventory next week at higher prices if exchange rates move unexpectedly.
Manufacturers face similar dilemmas. Should they reduce prices because petrol has fallen slightly? Or should they prepare for future increases in electricity, diesel, imported inputs or foreign exchange? Many choose caution. That caution translates into sticky consumer prices.
Weak competition prolongs high prices
Economist Abdulnaseer Turawa Yola believes Nigeria’s institutional weaknesses are preventing consumers from enjoying the full benefits of lower energy prices.
“The reduction is insignificant when compared with the decline in global crude prices,” he argues.
He identifies deeper structural problems including weak institutions, persistent inflation, governance challenges, corruption, and limited competition.
According to him, these factors prevent lower fuel prices from producing meaningful reductions elsewhere in the economy.
“Our institutions, which should serve as development agents, remain weak. Inflation, incompetence and corruption have prevented prices from falling the way they should,” he added.
Why marketers cannot slash prices overnight
Petroleum marketers insist the public misunderstands how pricing works. Their central argument revolves around inventory.
Fuel currently being sold was often purchased weeks earlier at significantly higher depot prices.
Reducing retail prices immediately would force marketers to sell below acquisition cost.
Industry executives argue that no commercial business can sustain such losses.
One marketer explained the situation simply: “For marketers to reduce pump prices, gantry prices must first come down. That’s where pricing starts.” Until older inventory clears, retailers say meaningful reductions remain difficult.
Meanwhile, the Federal Competition and Consumer Protection Commission (FCCPC) has acknowledged growing public frustration.
Tunji Bello, the FCCPC executive vice chairman, notes that while the commission does not regulate petrol prices in Nigeria’s deregulated market, it has responsibility for preventing exploitative practices.
“We are concerned that dealers often respond swiftly by hiking pump prices whenever crude prices rise, but consumers wait much longer to benefit when crude prices fall. Competitive markets must work fairly in both directions,” he said.
Calls for government intervention have grown louder as consumers demand quicker reductions in petrol prices. But some energy experts warn that compelling marketers to slash prices could create a different set of economic problems.
Iledare argues that allowing the government to dictate prices would contradict the Petroleum Industry Act and weaken investor confidence in the downstream sector.
“A rules-based downstream petroleum market cannot simultaneously operate under deregulation and executive price directives,” he cautioned.
The profit dilemma
The pressure to reduce pump prices comes at a time when downstream operators are battling mounting commercial challenges.
Beyond fluctuations in global crude prices, marketers continue to contend with exchange-rate volatility, expensive financing, rising storage costs and an increasingly costly distribution network. Together, these factors have compressed margins and complicated efforts to pass lower international oil prices directly to consumers.
Muda Yusuf, the chief executive officer of the Centre for the Promotion of Private Enterprise, argues that government intervention must therefore remain evidence-based. According to him, regulators must balance consumer welfare against the commercial sustainability of fuel marketers. He warned that without profitable marketers, fuel shortages could return.
Market forces, not mandates, to drive next price adjustment
Successive ex-depot price reductions by Dangote Refinery have intensified competitive dynamics across Nigeria’s downstream petroleum industry, increasing pressure on rival marketers to review retail prices.
Analysts argue that sustained competition is more likely than regulatory intervention to produce durable reductions in pump prices and improve price transmission throughout the economy.
Yet petrol remains only one component of Nigeria’s inflation equation.
Businesses continue to contend with elevated financing costs, exchange-rate volatility, rising electricity tariffs, higher labour expenses and expensive imported inputs, all of which remain embedded within current pricing structures.
Consequently, even continued declines in fuel prices may not immediately translate into lower consumer prices.
For households already struggling with persistent increases in transport, food, healthcare and housing costs, recent pump price reductions have provided little measurable relief.
Economists also point to behavioural factors. Companies are often reluctant to reduce prices ahead of competitors, creating widespread price rigidity even after input costs begin to decline.
A sustained improvement in consumer prices will therefore depend on an alignment of factors, including deeper competition, lower inflation, exchange-rate stability, increased domestic refining capacity and improved macroeconomic conditions.
Until then, Nigeria’s cost-of-living crisis is likely to persist despite periodic declines at the petrol pump.
