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Critical Survey On Fuel Price Changes And Its Effect On Nigeria Economy

| Format: Ms Word | 1-5 Chapters | Table of Content|


Study Level: BTech, BSc, BEng, BA, HND, ND or NCE

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Oil marketers reluctant to change petrol price to N125 per litre -



This study was undertaken to objectively examine fuel price fluctuations and their impact on the Nigerian economy. The study used a survey research design approach to assess the impact of the fuel price increase on the Nigerian economy. The study’s population consists of senior officers and junior personnel from the Ministry of Petroleum Abuja who are involved in petrol and gas matters. A total of thirty (30) participants were chosen at random from a population of seventy (70). The questionnaire was designed in accordance with the study’s research objectives, questions, and hypothesis. The Chi-square test was performed to confirm hypotheses. The findings demonstrated a substantial association between recent rises in fuel prices and Nigerian economic growth. It was also determined that the Nigerian economy is not developing as a result of the influence of fuel price increases on purchasing power, and that there is a significant association between increases in petroleum pump prices and food security. The study therefore recommended that the government retain fuel subsidies while expediting the construction of the three proposed refineries; that fuel subsidies be removed as soon as these new refineries are commissioned; that the proposed rehabilitation of the existing refineries be expedited; and that the government vigorously pursue railway revitalization. If Nigerians had alternatives to road transport, none of this would have happened, and private enterprises should be encouraged to start building refineries immediately with the certainty that subsidies will be eliminated before they begin production.



Title Page                                                                                                                   Page Nos.

Certification                                                                                                                   i

Dedication                                                                                                                     ii

Acknowledgements                                                                                                       iii

Table of Contents                                                                                                          iv

List of Tables                                                                                                                 v

List of Figures                                                                                                               vi

List of Acronyms (if any)                                                                                             vii

Abstract                                                                                                                         viii



  • Background to the Study
  • Statement of the Problem
  • Objectives of the Study
  • Research Questions
  • Research Hypotheses
  • Significance of the Study
  • Scope and limitation of the Study
  • Definition of Terms



2.1 Conceptual Reviews

2.1.1 Concept of Crude Oil Price

2.1.2 Concept of Economic Growth

2.1.3 Oil Price Shocks: Origin and Causes

2.1.4 Oil Price Shocks and Economic Activity

2.1.5 Changes in Crude Oil Prices and Economic Growth in Nigeria

2.1.6 Relationship between Oil Price Shocks, Stock Price Movement and Economic Growth

2.1.7 Effect of the Recent Increases in Fuel Prices on Economic Growth in Nigeria

2.1.8 Causes of Oil Price Shock in Nigeria

2.1.9 Effects of Fuel Price Hike on Purchasing Power

2.1.10 Impacts of Fuel Price Increase on Economy

2.1.11 Conceptualizing of Subsidy

2.1.12 Role of Fuel Subsidy

2.2 Theoretical Framework

2.2.1 The Asymmetry-in-Effects Theory of Economic Growth

2.2.2 The Linear/Symmetric Relationship Theory of Growth

2.4 Empirical Literature Reviews



3.1       Introduction

3.2.      Research Design

3.3       Area of the Study

3.4       Population of the Study

3.5       Sample and Sampling Technique

3.6       Instrumentation

3.7       Procedure for Data Collection

3.8       Reliability and Instrumentation

3.9       Validity of the Instrument

3.10     Procedure for Data Analysis



4.1       Introduction

4.2       Presentation and Interpretation of Data

4.3       Testing of Hypotheses



5.1       Introduction

5.2       Summary of the Study

5.3       Conclusion

5.4       Recommendations



                                                CHAPTER ONE


1.1 Background to the Study

Crude oil price fluctuations are a typical occurrence in the global oil market, since the world economy has seen a number of swings in the price of crude oil at various times. These price shifts, often known as oil price shocks, are usually explained by the events that precede them. According to Hamilton (2011), the key post-World War II oil shocks were the Suez Crisis of 1956-1957, the OPEC oil embargo of 1973-1974, the Iranian revolution of 1978-1979, the Iran-Iraq War that began in 1980, the first Persian Gulf War in 1990-91, and the 2007-2008 oil price increase. The price of oil reached an all-time high in 2008, when it was sold at $140 a barrel; this was the highest price ever recorded in the oil market (Sanya, 2015).

However, the second half of 2014 saw the start of yet another oil price shock. By the year 2015, the price of crude oil had decreased by more than half compared to the previous year, with global ramifications. The immediate cause of this drop was a market imbalance caused by excess crude oil supply to the market by oil-producing countries. According to Maugeri (2016), the significant output growth experienced by major oil producers such as the United States and Iraq, as well as Saudi Arabia’s imposition of a policy of no production cutbacks on the Organization of Petroleum Exporting Countries (OPEC), created an output level that could not be absorbed by demand. Nigeria’s resource endowment is undeniable; the country is the largest oil producer in Africa and ranks 13th in the globe. It has 37,062 million barrels of proven crude oil reserves and 5,284.3 billion cubic meters of natural gas reserves (OPEC Annual Statistical Bulletin, 2016). As a result, its reserve base is ranked 10th in the world and 2nd in Africa. . Following the rebasing of the country’s GDP, it became the largest economy in Africa.

Crude oil is one of the most basic energy sources on the planet, and it is crucial to the growth and development of many economies. Because of the high demand for this commodity, the oil market is vulnerable to supply and demand market dynamics, which create price swings. According to (Blanchard and Gali, 2007), changes in the price of oil are a major cause of economic volatility, with the consequent effect generating a worldwide shock that can interrupt several economic activities at once. This shock is thought to have a comparable effect as events like as a drop in growth rate, high unemployment rate, and high inflation rate, even if the size and sources of these shocks may differ. A rise in oil prices will cause an economic shock in an economy that is reliant on imports, and vice versa in an economy that is based on exports.

According to (Oyelami & Olomola, 2016), agriculture was the foundation of the Nigerian economy until the early 1970s. The Kano groundnut pyramids, oil palm, and the faster section of cocoa in the western part of the country were once famed for producing groundnuts. The finding of commercial quantities of oil in the country caused enormous economic changes. All other industries appeared to have faded into obscurity, if not outright abandonment, leaving the country entirely dependent on oil for foreign exchange revenues rather than agriculture. Every attempt to diversify the country’s economy since then has failed.

Constraints on the economy to a single export commodity are unavoidable, as oil has unavoidably become a target of political manipulation due to its importance to national economies. The most serious issue for Nigeria is that oil is the country’s principal commodity, and the country’s fundamental reliance on it has forced the economy to revolve around it. It is important to nearly every critical service supplied in the country. Oil is used in almost every other sector of the economy. Any consideration of a hypothetical scarcity or unavailability of the commodity will, without a doubt, spell disaster for the country’s economy (Sikkam, 2009).

According to Yemi (2012), the nation has recently been plagued by full shortage, which appeared to be becoming worse at the start of these years, creating a great deal of sorrow, agony, and interruption of economic and other activity. There are few sectors, institutions, or organizations in Nigeria today that have not been negatively impacted. According to Nwosu (2009), smuggling oil outside the country will remain viable as long as petroleum product price remains low and bordering country pricing remains high.

Fuel scarcity, according to Arinze (2011), is the outcome of inadequate management. According to Osogie (2012), if the price of gasoline remains steady, real GDP growth will decelerate. Furthermore, the increase in fuel prices, along with the certainty of different pricing across the country, will drive consumer price inflation by 3 to 5 percentage points in 2012. The increase in gasoline prices will affect both household income and consumption. Inflation will lead the value of the minimum wage to decline further (assuming it ever hits N18, 000). Simultaneously, the average household’s annual spending on energy and services would rise by roughly N75, 000, while their savings rate would fall. The drop in the saving rate will erode nearly half of Nigeria’s current middle-class population, mitigating the short-term effects of rising prices on the economy. Consumer spending will be drastically decreased over the next few years as consumers seek to adjust and develop new savings.


1.2 Statement of the problem

Many empirical research on the macroeconomic impact of oil price shocks on net exporting countries have been done. These studies are based on the link between the price of oil and the business cycle, which can be explained by the effect of oil price shocks on aggregate demand. According to Ftiti, Guesmi, and Teulon (2014), an increase in oil prices has an impact on aggregate supply because high energy prices cause businesses to acquire less energy. As a result, the productivity of any given amount of capital and labor will diminish, potentially resulting in output losses. This will always result in lower production inputs and lower real salaries. To further explain the impact of oil price shocks on aggregate demand (Riaz et al., 2017) said that because oil is one of the most fundamental inputs in manufacturing, every positive oil price shock raises the cost of production. As manufacturing costs grow, investment profit margins decline, causing investors to postpone their irreversible investments. Reduced investment leads to lower production levels, which has a negative impact on the country’s exports and forces the economy to deal with a negative trade balance. Oil price fluctuations cause customers to rearrange their spending on durable items, which has a knock-on effect on households. According to Osagie (2015), oil price shocks are a major source of concern for all sorts of economies since aggregate demand is decreased on both the consumer and investment sides. Some market participants said the rise was due to the withdrawal of a gasoline subsidy, which resulted in higher fuel pump costs. They claimed that the cost of carrying materials and goods from the point of purchase to the site of business had grown, and that as a result of the rising prices, patronage had decreased. Furthermore, Arinze (2011) said that carriers have complained that getting their tanks filled in the face of gasoline scarcity is extremely difficult, since their cars are sometimes abandoned at filling stations for days. At other times, they are forced to use the illicit market at exorbitant prices, resulting in increased transportation costs. Furthermore, he stated that a rise in gasoline prices would have a negative impact on government officials, businesspeople, students, and lecturers, especially because it would boost the cost of living. It is therefore on this backdrop that the researcher wants to examine the impact of the above enumerated problems as a result of fuel price increase on Nigerian economy.


1.3       Objective of the study

The broad objective of this study is to carry out a critical survey on fuel price changes and its effect on Nigeria economy. Specifically the study will:

  1. Ascertain if the   recent increases in fuel prices will have any effect on the economic growth in Nigeria?
  2. Determine what extent fuel price hike will affect purchasing power in Nigeria
  3. Investigate if fuel subsidy removal will have an impact on Nigerian balance of payment.
  4. Examine if increase in pump price of petroleum will have any implications on food security in Nigeria.

1.4 Research Questions

The following question is carefully formulated in line with the research objectives to guide the study:

  1. Does crude oil price have any significant impact on Nigerian economy?
  2. Does recent increases in fuel prices have any significant effect on the economic growth in Nigeria?
  3. Does fuel subsidy removal have any significant impact on Nigerian balance of payment?
  4. Does increase in pump price of petroleum have any significant implications on food security in Nigeria?

1.5 Research Hypothesis

H01: Recent increases in fuel prices does not have any significant effect on the economic growth in Nigeria

H02: Fuel subsidy removal does not have any significant impact on Nigerian balance of payment

H03Increase in pump price of petroleum does not any implications on purchasing power and food security

1.6 Significance of the study

Findings of the study will be relevant to government as it would provide with framework on making informed decisions concerning the need to retain fuel subsidy while expediting the construction of the three proposed refineries, rehabilitate the existing refineries and as well embark on full deregulation of fuel prices to ensure market competitiveness. More so it would enlighten private companies on investment opportunities as the result of the study would encourage them on start building refineries now with the assurance that subsidy would be removed before they start production. Empirically, the study would add to the body of existing literature on this subject and serve as a reference material to both scholars and student who wishes to conduct further studies in related field.

1.7 Scope of the study

The scope of this study borders on a critical survey on fuel price changes and its effect on Nigeria economy. The study will find out if the   recent increases in fuel prices will have any effect on the economic growth in Nigeria. It establish what extent fuel price hike will affect  purchasing power and food security in Nigeria and reveal if  fuel subsidy removal will have an impact on Nigerian balance of payment. The study is however limited to Ministry of Petroleum Abuja.

1.8 Limitation of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing to the nature of the discourse thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. Additionally, the researcher will simultaneously engage in this study with other academic work. More so, the choice of the sample size was limited as few respondent were selected to answer the research instrument hence findings of the study cannot be generalize. However, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.

1.9 Definition of terms

Price Hike:  a sudden or large increase in prices, rates, taxes, or quantities.

Transportation: transportation is the movement of humans, animals and goods from one location to another

Petrol: Petroleum is a versatile fossil fuel that can be refined into many different products. Common examples include gasoline, kerosene, fuel oil, and lubricating oil.