Diesel prices are set to surge in the coming weeks as strikes in European refineries, shutdown due to maintenance, and embargo on Russian supply by the European Union would crimp supply.
Workers in three refineries in France operated by TotalEnergies began a strike action last week over planned pension reform by the French government which raises retirement age. The three facilities suspended diesel deliveries for the wholesale market, and one of them reduced its run rates to a minimum.
Reports in European media indicate that twice as many major refineries will shut down for repairs to compensate for delays in maintenance during the pandemic. This will reduce the volume of diesel refined and exported.
Diesel markets could also suffer constraints based on the decision of the EU to declare an embargo on Russian fuel imports from February 5. Russia is the EU’s biggest supplier of fuels, especially diesel.
Ahead of the embargo, traders are buying large volumes of Russian diesel with flows into storage tanks hitting the highest in a year, according to Reuters tracking.
Supplies from the United States that sometimes provide a buffer to keep the diesel market liquid may not be forthcoming this time as diesel cargoes are being diverted from their original destinations in Europe to new ones in the US.
In a matter of days, traders would be cut off from access to Russian diesel but there is not enough supply for Europe and America, a situation that will further worsen prices.
Diesel is deregulated in Nigeria, and oil marketers are supposed to set prices on the prevailing rate of oil prices but that is not the case.
Diesel prices at filling stations across the country do not reflect the global swings in oil prices, a development analysts blame on a local diesel cartel who fixes prices.
According to the National Bureau of Statistics (NBS), the average retail price of diesel paid by consumers rose from N288 per litre in January to N818 in December last year. On a month-on-month basis, this increased by 1.11 percent from N809 in November.
Brent crude, the international oil benchmark, has declined by 34 percent from a high of $122 per barrel when the Russia-Ukraine war intensified. In December, Brent crude averaged $80.92, the lowest last year.
But this has yet to reflect on diesel prices, which still average between N800 and N810 per litre in some filling stations in Lagos.
“The average retail price of Automotive Gas Oil (diesel) paid by consumers in December 2022 was N817.86 per litre, an increase of 182.64 percent from N289.37 per litre recorded in the corresponding month of the previous year,” the NBS said in its latest report.
This situation is having a negative impact on businesses, which are forced to rely on diesel generators on account of the country’s creaking national grid.
In July last year, following the rising price of diesel, the Manufacturers Association of Nigeria (MAN) urged the Federal Government to issue diesel import licences to their members to avert the shutdown of their operations.
“In light of the gravity of the precarious situation that we have found ourselves as a nation and the looming dangers ahead, the expectations of manufacturers in Nigeria are as follows: that government should urgently allow manufacturers and independent petroleum products marketing companies to also import AGO from the Republic of Niger and Chad by immediately opening up border posts in that axis in order to cushion the effect of the supply gap driven high cost of AGO,” Segun Ajayi-Kadir, director-general of MAN, said in a statement.
The association also asked the government “to issue licences to manufacturing concerns and operators in the aviation industry to import diesel and aviation fuel directly to avert the avoidable monumental paralysis of manufacturing activities arising from total shutdown of production operations and movement of persons for business activities”.