Abstract:
The paper examines deregulation of downstream oil sector and optimal petroleum pricing in
Nigeria. Log linear error correction model was adopted to examine how Custom and excise
duties (CED), petroleum profit tax (PPT),) and crude oil production (COP) had impacted on
petroleum pricing (PR) in Nigeria. Unit root test was carried out on each of the variables to
determine their level of stationarity. Three of the variables were however found stationary after
first difference and one after second difference, and then it was safe to proceed with Johansen
Cointegration Test. The integrated variables were then used for the regression analysis. The
cointegration result showed that the variables used in the model have a long term, or equilibrium
relationship between them. The result showed that with deregulation of the downstream oil
sector, the amount of levies on importation of petroleum would hike the price of domestic sales
of petroleum. This shows that, deregulation would discourage the importation of refined fuel and
as such it would encourage foreign direct investment in the oil and gas sector. More so, the
result showed that the quantity of crude oil production in Nigeria has been far below the optimal
capacity and has contributed positively to petroleum pricing increase over the years in Nigeria.
The study thus recommends that appropriate policy that would facilitate economic prosperity for
an average citizen in Nigeria through petroleum price reduction should be adopted. The caveat
issue to keep in mind is that the petroleum downstream sector deregulation should produce
efficiently, effectively and equitably, which could result in durable infrastructures and optimal
petroleum pricing for sustainable development of the national economy.
