Cheaper petrol needs stronger Nam dollar

For the petrol price to materially decrease, the Namibian dollar will have to strengthen to about 17.55 against the US dollar and global oil price will have to decline and remain below US$90 per barrel this month.

This is according to calculations by Simonis Storm (SS).

Yesterday afternoon, the South African rand, to which the Namibian dollar is pegged, traded at 18.12 against the greenback. Brent crude was US$92.81 per barrel.

Petrol prices in the country will remain unchanged this month, selling for N$20.08 per litre at Walvis Bay. The price of diesel, however, today spikes by N$1.98 to N$24.10 at the coast.

Last November, petrol cost N$14.95 per litre at Walvis Bay, while the pump price for diesel was N$14.88 per litre. Since the beginning of 2022, petrol prices have increased by 28.3% or N$4.43 per litre. Diesel has become nearly 55% or N$8.52 per litre more expensive.

OUTLOOK

Commenting on the mines and energy ministry’s latest fuel price announcement, SS said the global oil market is likely to remain volatile “as negative macroeconomic data, lower growth in China, expectations of economic recessions and Opec production target cuts weigh on prices on the one hand and basic fundamentals where demand exceeds supply remain in place and should be price supportive on the other hand”.

In SS’ view, the production cuts of the Organisation of the Petroleum Exporting Countries (Opec) should not lead to higher oil prices, given that most of the bloc’s members were already missing production targets in the past.

“Opec produced 3.6 million barrels per day below their target in August 2022, according to Reuters as an example. Under-production was mainly due to political sanctions on Iran, Venezuela and Russia, as well as under-investment and production problems in Nigeria and Angola,” SS said.

SS referred to Goldman Sachs analysts who expect supply cuts to mainly come from Gulf Opec producers such as Saudi Arabia, Iraq, Kuwait and the United Arab Emirates (UAE).

PRICE MOVEMENTS

Opec and participating non-Opec member states decided on 5 October 2022 to cut oil production targets by two million barrels per day (bpd) which was the largest production target cut since 2020, SS said.

At the next meeting, which will be held on the 4 December, Opec will move to meeting every six months instead of once a month. “This could lower oil price volatility, but implies that oil prices could see bigger price movements on Opec announcements going forward,” SS continued.

According to the analysts: “Taking the above into consideration, the ministry of mines and energy (MME) incurred a minor over-recovery of N$0.13 per litre on petrol and a sizeable under-recovery of N$2.60 per litre on diesel.

“Given standard practice in Namibia, instead of diesel prices increasing by the full N$2.60 per litre, the National Energy Fund partially subsidises the under recoveries, this time with N$0.62 per litre, so that diesel only increases by N$1.98 per litre. This was the second largest under-recovery incurred on diesel in 2022.”

LEVIES

All fuel levies have been restored to usual levies, following the MME’s decision to reduce levies in order to provide some relief to consumers in April 2022.

Levies on fuel normally account for 2.1% of government’s total tax revenue and is expected to decrease by 11.6% in 2022 according to ministry of finance estimates, SS said.

“This forecast is most likely supported by consumers who attempt to travel less or wisely (i.e. car pooling, etc.) could lead to lower oil consumption locally and levy reductions that were made in April 2022.

“Beyond 2022, levies on fuel are forecasted to increase as consumption patterns normalise and levies remain at normal levels,” SS said.