ANALYZING THE EFFECT OF OIL PRICE AND EXCHANGE RATE ON PMS PRICING BY NNPC LIMITED AND DANGOTE REFINERY, AND MARKET INTERACTION IN NIGERIA’S DOWNSTREAM PETROLEUM SECTOR

Abstract

This study investigates the pricing dynamics and market interactions between the Nigerian National Petroleum Company Limited (NNPC Ltd) and the Dangote Refinery in Nigeria’s downstream petroleum sector. Using weekly data from September 2024 to July 2025, the study employs the Autoregressive Distributed Lag (ARDL) model to examine the sensitivity of Premium Motor Spirit (PMS) prices to key macroeconomic factors—international crude oil prices, exchange rates, and inflation—and to assess the impact of the Dangote Refinery on supply trends and petroleum importation. Unit root tests indicated a mixed order of integration [I(0) and I(1)], validating ARDL, while bounds tests confirmed long-run cointegration for both models. Long-run estimates showed international crude oil prices as the strongest determinant for both NNPC (β ≈ 3.43, p ≈ 0.04) and Dangote (β ≈ 23.37, p ≈ 0.03). Exchange rate pass-through was positive and borderline significant, while inflation was insignificant. Short-run results revealed asymmetric responses: NNPC prices were more influenced by exchange rates (p ≈ 0.03), while Dangote was more sensitive to oil price shocks (p ≈ 0.08). Error correction terms were negative and significant (Dangote: –0.77, p < 0.01; NNPC: –0.90, p < 0.05), indicating rapid adjustment toward equilibrium. Supply analysis showed Dangote achieved 49% of national PMS supply by mid-2025, reducing import dependence. Diagnostic tests confirmed no serial correlation, homoskedastic residuals, and model stability. The study highlights crude oil and foreign exchange as dominant pricing drivers and recommends transparent pricing templates, FX stabilization mechanisms, NNPC–Dangote coordination, and improved regulatory oversight to enhance efficiency and consumer welfare.