The Dangote refinery, the largest single-train oil refinery in the world, has announced a reduction in its selling price of petrol to retailers, from N950 per liter to N890 per liter. This move is expected to further ease market pressures and potentially lead to a significant drop in fuel prices in Nigeria.

This development comes after the refinery's initial reduction in petrol price last year, which shook Nigeria's oil market. Since then, fuel prices have fluctuated as oil marketers across the country respond to the price shift initiated by the Dangote refinery. The ex-depot price of premium motor spirit (PMS) was lowered to N899.50 per liter during the yuletide season last year, from N970 in November.

Experts believe that the presence of a domestic refinery, as opposed to the insistent reliance on imported petrol, is the reason why fuel prices could drop to levels that would significantly reduce the country's inflation levels. Prior to the inauguration of the country's current president, petrol was sold for as low as N180 per liter. However, after the president announced the removal of fuel subsidies, the price of petrol shot up drastically, even reaching as high as N1,200 per liter at one point.

The Organization of the Petroleum Exporting Countries (OPEC) shares the same estimates, stating in a recent report that the Dangote refinery would ensure an adequate supply of fuel as well as spur a reduction in prices. The report notes that the Nigerian economy recorded healthy growth in 3Q24 across key sectors, with economic growth reaching 3.5%, y-o-y, in 3Q24, up from 3.2%, y-o-y, in 2Q24.

The OPEC report also highlights the importance of the non-oil sector in driving growth, supported by easing price pressures and a potential loosening of tight monetary policy. The ease of inflation projected to happen could also result from a more stable currency performance, with the central bank appearing to be nearing the end of its tightening cycle, following its rate hikes in 2H24, with the key policy rate standing at 27.5%.

Officials at the Dangote refinery have announced that the facility's current capacity of 500,000 barrels per day is on track to reach its full potential at 650,000 barrels per day by June of this year. This increase in production capacity is expected to further stabilize the petroleum product supply and potentially lower petrol prices.

The refinery intends to buy crude from outside the country's oil market to cover its local crude shortfall, which is currently supplied by the Nigerian National Petroleum Cooperation (NNPC) at between 350,000 and 450,000 barrels per day. If the refinery covers its local crude shortfall with imported oil, it is expected to increase production to 650,000bpd.

The potential impact of the Dangote refinery's increased production capacity and reduced prices on Nigeria's energy market and inflation levels cannot be overstated. As the country continues to grapple with high inflation rates, any reduction in fuel prices could have a significant positive impact on the economy.

In conclusion, the Dangote refinery's recent price reduction and increased production capacity are expected to have a significant impact on Nigeria's energy market, potentially leading to a drop in fuel prices and a reduction in inflation levels. As the country continues to navigate its economic challenges, the role of the Dangote refinery in stabilizing the energy market cannot be overstated.