OPEC oil cuts spark fuel price increases in Southern Africa
By Rumbidzayi Zinyuke
ON 1 March, the government of Namibia announced an almost 3 percent increase in fuel prices as a direct response to the production cuts by the Organization of the Petroleum Exporting Countries (OPEC), which was effected in the last quarter of last year.
OPEC agreed to cut production by 1.2 million barrels a day in a bid to balance the oversupplied crude oil market. This led to a rally in oil prices to more than US$55 per barrel from about US$27 per barrel in January 2016.
In a statement released at the end of last month, the Minister of Mines and Energy Obeth Kandjoze said despite a stable exchange rate and financial market, OPEC’s announcement heavily affected fuel prices as the average Free On Board and refined oil prices went up.
“The basic Fuel Price Unit Rate Slate calculations for the past month recorded high under-recoveries on all the regulated petroleum products. The under-recoveries recorded are sufficient to trigger an increase in local pump prices. However, the National Energy Fund will meet Namibian fuel consumers halfway by absorbing a portion of the under-recoveries recorded,” said Minister Kandjoze.
He said Cabinet authorised a R0.10 per litre from all fuel products towards the NEF Strategic Oil Storage Levy and recommended that dealer margins be increased by about R0.04 per litre on all fuel products.
This has pushed petrol prices 2.9 percent from R10.68 to R11.00 while diesel 500ppm and diesel 50ppm have gone up 2.4 percent to R10.83 and R10.88.
The situation in Namibia is however not an isolated case as most Southern African countries have witnessed a rise in fuel prices as a result of the increase in global oil prices.
At the beginning of February, South African motorists also began paying more for fuel as a result of increased crude oil prices and a higher exchange rate.
The price of petrol went up by about R0.29 to between R13.38 and R13.62 while diesel prices now cost consumers an additional R0.21 per litre at R11.63 and R11.66.
Automobile Association (AA) in South Africa has predicted a tough year ahead for motorists with a number of fuel price increases expected during the year.
In September last year, the Mozambican government announced the first fuel price hike in five years which saw petrol rising from 47.52 meticais (US$0.70) to 50.02 meticais (US$0.73) per litre, diesel from 36.81 meticais (US$0.54) to 45.83 meticais (US$0.67) per litre and lamp oil, used by most of the Mozambican population, from 28.64 meticais (US$0.42) per litre to 33.06 meticais (US$0.48).
“The measure arises from the need to update the prices in line with the import of petroleum products, the margins of distributors and retailers applied in the public sale of Liquefied Petroleum Gas (LPG)” noted the Ministry of Mineral Resources of Mozambique.
Because of the exchange rate effect, fuel is cheaper in Mozambique than in its neighbouring countries, which has seen some Zimbabwean motorists travelling across the border to buy petrol from Mozambican filling stations.
Zimbabwe and Zambia have probably the highest fuel prices in the region and the impact of the global oil price rally is already being felt among motorists.
In October last year, Zambia’s Energy Regulation Board (ERB) increased the price of fuel by an average of 34 percent mainly due to the volatility of the Kwacha.
However, at the beginning of this year, the ERB reduced the pump price of all petroleum products owing to the appreciation of the local currency against the dollar.
The price of petrol was reduced by K1.20 and is now selling at K12.50 (US$1.30) from the K13.70 (US$1.42) while diesel was reduced to K10.70 (US$1.11) from K11. 40 (US$1.18). Kerosene is now selling at K6.81 (US$0.71) from K8.03 (US$0.83).
The bulk of Zambia’s imported diesel is consumed by Zambia;s vast copper and cobalt mines on the Copperbelt and North Western provinces.
Zambia imports at least 90,000 metric tons of crude oil every six weeks, which is processed by the Copperbelt-based Indeni Petroleum Refinery for supply to the local market.
So an increase on the global market is bound to be felt locally.
In Zimbabwe, major fuel retailers increased prices by at least US$0.05 in January in response to the surge in global prices and a reduction of ethanol blend in the country.
“The global increase coincided with the reduction of ethanol blend in the country which also contributed to an increase of the final pump price of blended fuel,” Zimbabwe Energy Regulatory Authority (ZERA) chief executive officer, Gloria Magombo told local media earlier this year.
“At the global level, OPEC has been restricting supply of oil in the last quarter of 2016 with a drive to reduce output by about 1.2 million barrels a day by January 2017. The impact of this drive is to push the price of crude oil upwards. Zimbabwe is largely a price taker within the oil sector given its geographical location. This leaves little room for the oil market to maneuver resulting in the petroleum prices being adjusted in response to movements within the petroleum value chain.”
Diesel went up from around US$1.19 per litre to US$1.21 and US$1.28 for diesel 50. Petrol prices went up to US$1.36 per litre from US$1.31.
Resultantly, the increase in fuel prices has impacted negatively on the cost of doing business for local businesses.
Zimbabwe’s predicament arises from the fact that the country uses a stronger US dollar and has to import fuel from other countries that have the advantage of being closer to the ports.
Countries like Botswana have their fuel subsidised by their governments.
Despite a surge on the international fuel market, Botswana fuel prices have remained low as the National Petroleum Fund has cushioned the impact of volatile petrol prices in Botswana compared to other countries in the region.
Oil imports constitutes about 60 percent of Botswana’s import bill.
The government of Botswana continuously observes monthly pump prices and reviews them on a quarterly basis which means if the pump prices are lower than what they should be on the basis of international crude oil prices, government will then pay oil companies the disparity from the NPF to stabilise prices.
The price of fuel in Botswana is significantly lower than in South Africa at US$0.72 per litre.
Analysts have said Botswana might be stretching the NPF too far and could end up exhausting the fund if international pump prices keep rising, which is to be expected if OPEC maintains current production levels.
Although OPEC countries are largely sticking to their agreement with compliance more than 90 percent, investors suspect the cuts may not be maintained, preventing them from having a bigger impact on prices. This could affect countries such as Angola and Nigeria that have been banking on the increase in oil prices to boost their economic growth targets.
Angola announced its plans to start production cuts in January as part of OPEC’s deal.
Angola’s state-run oil company Sonangol said that it had cut crude production by 78,000 bpd to 1.673 million bpd as part of the OPEC agreement.
Angola has significantly suffered from the oil price bust and hopes that complying with the OPEC deal will push prices up.
Oil production activities make up around 45 percent of Angola’s GDP, and oil accounts for more than 95 percent of the country’s exports.
Currently, fuel pump prices in Angola stand at around US$0.93 after government announced an increase in prices early last year. Prices could remain high if international oil prices drop again.
But analysts and economists expect an average 2017 Brent price of US$57.52 a barrel with others expecting crude prices to rise to US$60 a barrel this year, with the hope that this would not spur new US production that could push prices down again.
OPEC currently provides 43 percent of global oil production but has 73 percent of the world’s “proven” oil reserves. It is the largest organization focused on oil production and clearly has massive influence on global energy prices. The 14 members include Algeria, Angola, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela.