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Why Does Diesel Fuel Price Fluctuate in Nigeria?

We understand that sometimes you ponder and wonder why diesel fuel price fluctuates?

From heavy-duty vehicles to industrial and home diesel engine generators, diesel is a necessity for our daily lives.

The retail price of a gallon of diesel fuel (AGO) mirrors not only the costs and profits but even the losses during production and delivery of products to end-users.

The Cost of Crude Oil
In the U.S, from 2009 through 2018, the average monthly contribution of the cost of crude oil to the price of diesel fuel per litre on-highway retail stations is 54%.

Therefore, the demand for diesel fuel generally follows economic trends of “the cost of crude oil”. This is because diesel fuel or AGO is a major player in transportation and heavy-duty fuel.

Some of the agents instigating the hike in the cost of crude oil are:

  • The current supply of crude oil.
  • future supply of crude oil.
  • The current output.
  • Political events and crises.
  • Worldwide demand and supply.

Refining Costs and Profits:
Sometimes, the cost of processing this crude to its various components becomes so high that diesel fuel suppliers and marketers get it at an exorbitant rate.

Costs of Retailing, Marketing, and Distribution:
Diesel fuel suppliers and marketers at this point are left with no choice than to increase the retail pump price in order to excessive expenses.

Taxes and Government Policies on Diesel Fuel Price:

These are the biggest contributors to the price hike of diesel (AGO) fuel. For bulk diesel fuel suppliers to succeed in this field and make the products available for the end-users at a very affordable price, there must be provision for subsidizing the purchasing-price of products.

Also, we cannot overlook other miscellaneous environmental fees.

The retail price of diesel fuel differs depending on the region or state where it is sold. And sometimes, the diesel supplier or marketer.

Knowing that the cost of crude is the largest factor affecting the price of diesel, other factors that contribute to the price fluctuation. These include;

Imbalances in the Demand and Supply of Diesel Fuel:

When compared to the price of transporting other commodities, the price of transporting petroleum products in Nigeria is generally outrageous.

This is evident in the Nigerian market because vehicle flow is solely dependent on crude oil products, mostly diesel (AGO) fuels. As such, if the supply of crude oil declines unexpectedly, stocks begin to decline, and both wholesalers and marketers will instantly begin to charge higher on the available products.

When this happens, the prices of all the commodities in the markets will instantly take to heels. And can even go up to a 200% increase, thereby resulting in inflation.

For a common man in the street of Lagos, Nigeria, it is just a normal price fluctuation.

Prices will remain relatively high in various states if the transportation system of diesel fuel cannot support the supply flow from one region to another.

It is not uncommon to see the price of diesel (AGO) fluctuates. That can be frustrating and also expensive because of greed; most oil marketers or importers hoard products which leads to an unexpected scarcity over time.

Seasonality of the Market:

The demand for diesel fuel is fairly congruent because it also reflects the strength, stability, and health of the country’s economy. Diesel prices periodically fluctuate (during the year) as a result of the season and the global economic standings of the oil and gas industry.

In Nigeria, the price fluctuates during the festive season (especially, the Christmas period). This is because there is an above-normal increase in the demand for diesel (AGO) fuel.

Again, it is worthy to also note that the price tends to steer upwards during this period because of the increased demand for other petroleum products in other regions or countries where Nigeria imports most of her products.

For instance, in the United State of America, which tops the list of Nigeria’s import nations, it’s obvious that the prices tend to increase during fall and winter. This births the excessive expenditure in the importation of diesel fuel. This is why Nigeria must produce and refine 100% of her petrol-diesel fuel consumption.

Cost of Transportation:
Just like our normal daily transportation, “the farther the distance, the higher the cost of transportation and vice versa”. Likewise, this applies to the transportation of diesel (AGO) fuel from the supply source to the retail outlet or end-users location. Literally, the cost of transportation is significantly determined by distance. But the price doesn’t always reflect the distance covered because some wholesale diesel suppliers seldom add figures in other to make exorbitant profits.

Diesel Fuel Price Market Competition:

Surely, life itself is all about competition, especially when it involves markets, sales or businesses.

Undoubtedly, refineries can fix any price for their products when there is low or no competition. But it is a different ball game when the market is saturated with competitors.

We need to know that when the rate of competition is very high, it leads to price fluctuation. Because the price will no longer be determined by the regulatory body – Department of Petroleum Resources (DPR) – for Nigeria. At this point, the competitors determine the price of the product base on the features, characteristics and most importantly, the quality (never to be undermined).

Geopolitics:

Basically, big-oil producing nations determines the supply. If there is any conflict with such countries, it could lead to issues that could cripple the entire sector. Hence, we cannot overemphasize the impact of geopolitics on the fluctuation of diesel prices.

If a war emerges in one of the oil-producing countries, the inventories of crude oil would feel threatened. This could affect the price of crude oil, thus, causing price uncertainty.

Finally, geopolitics is a notable factor that globally determines the price of crude oil, petroleum products, and diesel (AGO) fuel

At Arbitos Business Operations, we give the best price for our clients without compromising the quality of our products. You can see our current price of diesel here.

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