The oil industry has been contributing immensely to the Nigerian economy and that is why over 80 percent of the country‘s foreign exchange earnings come from this sector. Since the discovery of oil in commercial quantity, Nigeria has been experiencing consistent increase in revenue earning. Even with this increase, Nigerians are yet to enjoy the basic necessities of life. We have witnessed strikes and demonstrations against poor supplier‘s incessant increase in the pump price of refined products. In a bid to reduce the burden on the citizenry, the federal government introduced subsidy, which was to make prices of petroleum in the country cheaper for consumers to buy. But, alarmingly the price of the product continues to escalate even with the huge amount of about 1.7 million naira spent on subsidy. It is against this background that this work seeks to examine the issue of deregulation in the downstream oil sector and to find out if the partial removal of fuel subsidy has enhanced government funding on social welfare. The method data collection we used was based on observation and the sources of data collection were secondary. We also used liberal political economy theory to show the logical interrelatedness of the research question and the hypothesis During the course of this research, we found out that the enormous amount of money spent on fuel subsidy resulted to poor funding of social welfare and the partial removal of fuel subsidy has enhanced government funding on transport, health and education. This work therefore recommended that The SURE-Program of reinvestment and empowerment from the subsidy removal proceeds should be used to revamp the economy and federal government should monitor the state and local governments on how the make use of the funds.