UPDATE 3-Nigeria cuts gasoline prices, says official cap will fluctuate with oil

* Brent crude reaches 16-year low
* Minister says action will cushion public from COVID-19
impact

(Adds details)
By Felix Onuah and Libby George
ABUJA, March 18 (Reuters) - Nigeria will cut
government-capped gasoline pump prices and allow global oil
prices to affect the cost of that fuel, officials said on
Wednesday.
The moves will allow citizens to benefit from the deep slide
in international crude markets, but at the risk of adding to the
country's budget worries. Fuel prices are contentious in
Nigeria, where riots can break out at rumours of increases.
Prices had been kept artificially low at 145 naira ($0.48) per
litre.
Africa's biggest economy has been battered by the global
effects of coronavirus. Roughly 90% of the Nigerian government's
foreign exchange earnings come from sales of oil, prices of
which have taken a beating amid lower Chinese demand and a price
war between Saudi Arabia and Russia.
President Muhammadu Buhari approved a gasoline pump price
cut to 125 naira ($0.4085) a litre from 145 naira during a
cabinet meeting on Wednesday.
Timipre Sylva, minister of state for petroleum, later issued
a statement saying Nigerians should benefit from falling fuel
costs, which were "a direct effect of the crash in global crude
oil prices".
"This action is being taken to cushion the economic impact
of COVID-19 on our people," he said.
Also on Wednesday, Nigeria introduced a "modulation
mechanism" that will allow a reduction in petrol costs if there
is a decline in crude prices, a presidency aide said.
"Nigeria has now introduced a modulation mechanism - if
crude oil prices go down we will see a reduction in petrol
prices. If prices go up we will see an increase," Bashir Ahmed
said in a tweet. He attributed his remarks to Sylva.
While oil prices are the largest factor in gasoline, the two
do not always move in tandem. Demand for gasoline can outstrip
or lag demand for oil. Shipping, insurance and other costs also
fluctuate, making it tough to capture a cost-reflective fuel
price based on oil alone.
International benchmark Brent crude LCOc1 reached a
16-year low close to $25 a barrel on Wednesday, dragged down by
concerns about the impact of the coronavirus on the global
economy, a collapse in oil demand and a supply glut. O/R
State oil company NNPC imports nearly all the gasoline in
Nigeria, Africa's largest economy and a major oil producer,
because of price caps that mean marketers would lose money if
they imported themselves.
The price cap typically costs the government millions
because prices fluctuate on the international market and rarely
stay at the capped level.
In the first half of 2019, the World Bank estimated the
price caps cost the government 294 billion naira ($960.8
million), or nearly 0.2% of annual GDP.
The country has faced international pressure for years to
deregulate its fuel price -- and to let its currency, the naira,
float -- because of the cost and the distortions it creates in
the economy.

($1 = 306.0000 naira)