Oil just had its biggest fall in weeks. What does cheaper crude mean for Nigeria?

Oil prices fell hard this week. Brent crude, the world benchmark, settled at $94.62 a barrel on Wednesday 4 November. That was $8.98, or 8.7 per cent, lower than Tuesday, and the lowest close since 31 August.

It was the third fall in three days. Brent had settled at $103.60 on Tuesday and was near $118 at one point last Friday, Gulf News reported. On Thursday morning in Asia it slipped again, to about $93.65, according to Reuters.

Why did it fall?

Oil has been expensive this year because of the war involving Iran and attacks on shipping near the Strait of Hormuz, a narrow sea lane that carries a large share of the world's oil.

On Wednesday, traders reacted to the US midterm elections, in which the Democrats won control of Congress. Many in the market think that makes a deal to end the war more likely. "Pricing in more likelihood for the war to end," said June Goh of Sparta Commodities, speaking to Reuters.

Not everyone agrees. A senior Iranian official told Reuters the two sides remain far from a deal. Reuters also reported that crude shipments through Hormuz have recovered close to pre-war levels, though at a higher cost, and that JPMorgan sees the world oil market back in surplus.

So prices could bounce back if peace talks stall.

The good side for Nigeria: fuel

Nigeria now refines much of its own petrol, but the price is still set by world markets. Crude is the biggest single part of what you pay for a litre. On our sums, every $1 fall in Brent cuts the crude cost of a litre by about ₦8.50 at today's exchange rate. We break down a litre of petrol here.

Diesel and aviation fuel follow the same logic. Cheaper diesel lowers the cost of running generators, trucks and factories.

The other side: government income

Nigeria earns most of its foreign currency from selling crude. When the price falls, each barrel brings in less.

NNPC says crude and condensate output averaged 1.70 million barrels a day in September, according to its monthly report as reported by Vanguard. A $9 fall in the price on that volume is worth roughly $15 million a day less in sales value, before costs and the shares owed to partners. That is our rough estimate, not an official figure.

Less oil money means less flowing into the Federation Account, which funds the federal government, the 36 states and local councils. It can also mean fewer dollars coming into the country, which can put pressure on the naira.

Is this the start of lower prices?

Nobody can say. Brent is still far above where it was a year ago, when it was about $65, according to Fortune's daily price tracker. Mukesh Sahdev of XAnalysts told Reuters that stocks in big consuming countries are near their lowest in 15 years. Asked whether prices would stay lower, he said: "The short answer is no."

What it means for you

If the fall holds for a few weeks, expect petrol and diesel prices to ease, first at depots and then at the pump. It will not happen overnight, because refiners and importers are still selling fuel bought at higher prices.

Keep an eye on the naira too. A weaker naira can cancel out some of the saving from cheaper oil.