An economist and the Chief Executive Officer of Financial Derivatives Company Limited, Mr. Bismarck Rewane, has projected that petrol prices in Nigeria could reach N1,200 per litre in the near future.
In his November 2024 economic outlook, Rewane also predicted that Brent crude could trade at $70 per barrel by December and that inflation might rise to 34%. He forecasted a potential appreciation of the Naira to N1,550/$ by January 2025.
According to ThisDay, Rewane shared these insights during the November edition of the Lagos Business School’s Breakfast Session titled ‘Democracy on Trial! Trump – Going Back to the Future.’
He highlighted that there is no economic rationale for the Naira to trade at less than 30% of its fair value within the next 12 months.
“According to the Economist Intelligence Unit, crude oil prices next year will average $74 per barrel, which could push petrol prices to N1,200 per litre,” he stated.
He added that global oil prices and logistics distribution costs will play a significant role in determining petrol prices, noting that higher petrol prices could help curb smuggling while official fuel exports to neighboring countries might boost foreign exchange revenue.
Rewane cautioned that while the Dangote Refinery has been viewed as a game-changer for Nigeria’s oil sector, it is not the ‘silver bullet’ many had hoped for.
“The refinery’s pricing strategy is dictated by global crude prices and operational costs,” he explained.
While it would ensure supply and availability, it would not necessarily stabilize prices, as the refinery operates on a cost-plus margin model.
“Smuggling will continue as long as Nigeria’s petrol prices remain lower than those of neighboring countries,” he noted.
Rewane also pointed out that the recent increase in petrol prices from N600 to N1,030 per litre has led to a 25% reduction in vehicular movement. This observation was based on a vehicular count report conducted on Adeola Odeku, a major thoroughfare in Victoria Island, Lagos.
He emphasized that the Naira is currently undervalued by 35.18%, with its fair value pegged at N1,090.24 to the Dollar, compared to the current NAFEM rate of N1,682 and the parallel market rate of N1,742 per Dollar.
“We anticipate that the Naira will strengthen by January 2025, contingent on reforms in the exchange rate determination mechanism,” Rewane said.
He stressed that “there is no justification for the Naira to trade at less than 30% of its fair value for an extended period. We expect the currency to regain some of its value by early next year.”
Rewane underscored that the exchange rate is a significant driver of inflation in Nigeria. A partial recovery of the Naira would help reduce inflation and curb excessive money supply in the economy.
He projected that the Monetary Policy Committee (MPC) might maintain its current stance to allow existing policies to take effect, but upcoming inflation data for October, set for release on November 15, could influence this decision.
Rewane further noted that fluctuations in crude oil production could impact Nigeria’s trade balance and exchange rate.
Historically, stable exchange rates align with periods of positive trade balances and high crude oil production, while trade deficits and currency depreciation are linked to low production or declining oil prices.
He concluded that Nigeria’s best-case scenario would involve the Central Bank of Nigeria (CBN) keeping interest rates high until 2025, a surge in capital flows, regular rDAS auctions, and an increase in oil production to 1.55 million barrels per day.
Rewane also highlighted that corporate entities are facing significant foreign exchange losses, which have collectively reached N2 trillion for 10 prominent companies, impacting their earnings.
He pointed out that fixed assets acquired at historic rates have now fully depreciated, increasing operational inefficiencies and driving up maintenance and replacement costs.
“Companies with foreign currency-denominated debt are also experiencing increased servicing costs,” he concluded.