Expert Forecasts: Petrol Prices Could Reach N1,200 per Litre, Naira May Strengthen by 2025
Bismarck Rewane, a renowned economist and CEO of Financial Derivatives Company Limited, has shared his economic outlook for 2024 and 2025, predicting that petrol prices in Nigeria could reach N1,200 per litre and the Naira may strengthen to N1,550 per dollar by January 2025.
According to Rewane, the Brent crude oil price is expected to trade at $70 per barrel by December, which could push petrol prices higher. He also forecasts inflation to rise to 34% and a potential appreciation of the Naira against the dollar.
At a recent Breakfast Session hosted by the Lagos Business School, Rewane emphasized that the Naira is undervalued by 35.18% and predicted that it will strengthen in the near future, contingent on reforms in the exchange rate determination mechanism.
He pointed out that the Naira’s current value is significantly lower than its fair value, with the Economist Intelligence Unit predicting that crude oil prices next year will average $74 per barrel. This, he believes, could push petrol prices to N1,200 per litre.
Rewane highlighted that global oil prices and logistics distribution costs will play a crucial role in determining petrol prices. He also noted that higher petrol prices could help curb smuggling and official fuel exports to neighboring countries could boost foreign exchange revenue.
Regarding the Dangote Refinery, Rewane cautioned that it is not the “silver bullet” many had hoped for, as its pricing strategy is dictated by global crude prices and operational costs. While the refinery will ensure supply and availability, it may not stabilize prices due to its cost-plus margin model.
He also emphasized that the recent increase in petrol prices has led to a 25% reduction in vehicular movement, based on a report conducted on Adeola Odeku, a major thoroughfare in Victoria Island, Lagos.
Rewane highlighted 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.
He projected that the Naira will strengthen by January 2025, contingent on reforms in the exchange rate determination mechanism. He stressed that “there is no justification for the Naira to trade at less than 30% of its fair value for an extended period” and that the currency is expected to regain some of its value by early next year.
Rewane underscored that the exchange rate is a significant driver of inflation in Nigeria and that a partial recovery of the Naira would help reduce inflation and curb excessive money supply in the economy.
He predicted that the Monetary Policy Committee (MPC) may 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 also highlighted the potential impact of fluctuations in crude oil production on Nigeria’s trade balance and exchange rate. He noted that 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.
In his conclusion, Rewane emphasized 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.
He also highlighted that corporate entities are facing significant foreign exchange losses, which have collectively reached N2 trillion for 10 prominent companies, impacting their earnings.
Rewane pointed out that fixed assets acquired at historic rates have now fully depreciated, increasing operational inefficiencies and driving up maintenance and replacement costs. He noted that companies with foreign currency-denominated debt are also experiencing increased servicing costs.
