Nigeria's Petroleum Market, 2023 to 2026: Price Ceiling Removal, Supply Distortions, Refinery Market Structure, Strategic Pricing Dynamics, Externalities, and Production Efficiency

On May 29, 2023, Nigeria abolished its long-standing fuel subsidy, ending nearly five decades of administered price controls on Premium Motor Spirit. Within hours, the pump price rose from N198 to N540 per liter, and by October 2024, it had reached N1,030 per liter, a cumulative increase of 421 percent. This paper applies eight microeconomic models to analyze Nigeria's petroleum market across a thirty-four-month window from May 2023 through March 2026.

The analysis establishes that the annual welfare loss attributable to the price ceiling was approximately N1.456 trillion, equivalent to 2.7 percent of GDP. Consumers absorbed 76.2 percent of the total price increase, consistent with the estimated price elasticity of supply and demand in the Nigerian fuel market. At the regulated ceiling, model-calibrated supply fell to 11.1 million liters per day against demand of 55 million liters per day, generating a daily shortage of 43.9 million liters and a black-market price of approximately N772 per liter, consistent with observed informal market prices of N600 to N800 per liter.

A fully scaled direct household cash transfer program would have delivered greater distributional efficiency at no additional fiscal cost to the government. The entry of the Dangote Petroleum Refinery into commercial PMS production in September 2024 transformed the downstream market from a de facto import monopoly into an asymmetric Cournot duopoly. Sequential price reductions by Dangote drove the pump price to approximately N699 per liter by December 2025.

As of January 2026, Dangote supplied 40.1 million liters per day, representing 61.78 percent of total national PMS supply. An exogenous crude price shock driven by Middle East conflict pushed Brent crude above $80 per barrel on March 2, 2026, and to approximately $102 per barrel by March 9, 2026, triggering a sequence of upward gantry price adjustments by Dangote, reaching N1,175 per liter on March 9 before a partial reduction to N1,075 on March 10. Pump prices across major branded stations in Lagos and Abuja ranged from N1,025 to N1,300 per liter as of March 12, 2026.

Aggregate macroeconomic indicators registered measurable improvement: the consolidated fiscal deficit narrowed from 4.8 to 4.1 percent of GDP between 2023 and 2024, while gross international reserves rose to $40 billion. Household welfare deteriorated sharply across the lower income distribution. By 2024, an estimated 47 percent of Nigerians lived below the poverty line, and 25.1 million people experienced acute food insecurity during the October through December harvest season.

The cash transfer program designed to protect vulnerable households reached only 5.5 million of the 15 million target households. In aggregate, the reform achieved its stated fiscal objectives but fell substantially short of its social protection goals.