March 21, 2025/CSL Research
Dangote Petroleum Refinery has temporarily suspended fuel sales in the local currency to prevent a financial mismatch between its crude oil purchases in US dollars and domestic fuel sales in Naira. As we discussed last week, the refinery has been increasing crude oil imports from the US, Angola, and Algeria due to insufficient supply from the national oil company. Given its critical role in the country’s refined petroleum supply, this shift to US dollar transactions could exacerbate existing macroeconomic challenges, particularly affecting fuel affordability and exchange rate stability.
Local fuel marketers, who previously conducted transactions in Naira, will now need to source US dollars for fuel purchases, increasing demand pressure on the local currency. This shift is expected to heighten volatility in the foreign exchange (FX) market in the coming weeks as businesses and fuel distributors compete for a limited dollar supply.
Local fuel marketers, who previously conducted transactions in Naira, will now need to source US dollars for fuel purchases, increasing demand pressure on the local currency. This shift is expected to heighten volatility in the foreign exchange (FX) market in the coming weeks as businesses and fuel distributors compete for a limited dollar supply. Additionally, pricing fuel in US dollars could lead to higher pump prices, raising transportation and production costs across various sectors. In turn, elevated fuel costs may drive broader inflationary pressures, further increasing consumer prices. This could worsen the cost-of-living crisis, reduce household purchasing power, and raise business operating expenses, potentially slowing economic growth.
These developments are likely to influence the Central Bank of Nigeria’s (CBN) monetary policy stance. With increased volatility in the FX market and sustained pressure on the local currency, the CBN may be forced to maintain a tight monetary policy for longer than expected. This could delay the anticipated interest rate cuts in the second half of the year, as the apex bank prioritises exchange rate stability and inflation control over stimulating economic growth. Additionally, the recent upward trend in stop rates in the treasury bills market suggests growing challenges for the CBN in balancing currency stability with the need to support economic activity.
Given these challenges, it is crucial for authorities to finalise a new Naira-for-crude oil agreement between local refineries and the Nigerian National Petroleum Company (NNPC). However, we remain concerned that delays in reaching this agreement may arise from uncertainties about the NNPC’s ability to meet domestic supply commitments, given its existing forward sales obligations. Beyond the immediate need for a Naira-for-crude arrangement, broader reforms in Nigeria’s oil and gas sector are essential to strengthen domestic production capacity. Addressing longstanding security issues, such as pipeline vandalism—highlighted by the recent explosion at the Trans-Niger Pipeline—will be critical for ensuring energy security and fostering long-term macroeconomic stability.
Click here to download full report: CSL Nigeria Daily – 21 March 2025 – Oil.pdf
