Economists Forecast Reduced Fuel Prices In Local Market

By:Justicia Shipena
Simonis Storm Securities, in their oil market outlook for May 2023, predicts that local fuel price reductions will be announced in the upcoming months.
On 3 May the Mines and Energy Ministry resolved to keep the petrol prices unchanged while diesel consumers saw a decrease in the price by 80 cents per litre, pegging the cost of petrol at N$19.78 per litre and that of diesel at N$19.85 per litre.
The Ministry also noted an under-recovery of N$0.95 per litre for petrol and an over-recovery of N$1.11 per litre for diesel.
As a result, consumers paid N$19.78 for petrol in April rather than the actual N$20.73 per litre, and N$20.65 per litre for fuel when the real cost was N$19.64 per litre.
Simonis Storm said “if the above forecasts materialise, Namibians can expect local fuel price cuts to be announced in coming months”.
The firm said their initial prediction of N$25 per litre for petrol and diesel by the end of 2023 is now overly pessimistic.
The improved forecast is still dependent on both a flat to slightly negative global Brent and an increase in the Rand value, the firm added.
Despite the fact that oil prices are trending downward, Simonis Storm is of the opinion that Namibia is unable to witness a decrease in local fuel costs since the dropping Rand exchange rate is keeping its level above 18 versus the US dollar.
The price of Rand Brent crude is therefore anticipated to decline over the remaining quarters of 2023, according to the experts at Simonis Storm.
Due to the Russia-Ukraine war, oil spot prices were around $120 in June 2022; however, due to recession fears, interest rate increases and China’s zero-Covid policy, prices started to decline.
According to Simonis Storm, oil prices rose in early 2023 as a result of the announcement that China, the world’s largest oil importer, would be reopening its economy.
Despite the fact that by the end of 2022, the Chinese manufacturing sector had already largely resumed operations.
“We, therefore, did not believe that this news would be supportive of commodity prices. Since China dropped their zero-covid policies, there was a steep increase in business confidence as the composite Purchasing Managers Index breached the critical 50 index point level,” Simonis Storm explained.
The financial firm said this was just temporary and did not result in higher commodities prices.
In addition, since the year’s beginning until April 2023, commodities prices have decreased by 13.4%. Brent crude prices are down 7.4% at the same time.
Before OPEC+ announces reductions in oil output, Simonis Storm said, the price of spot oil closed at $79.77 per barrel.
Major oil producing nations, led by Saudi Arabia, announced an unexpected production decrease of more than one million barrels per day beginning in May this year.
By the end of April 2023, the price of oil had dropped by 9.8% and was trading at $79.54 per barrel.
“Demand according to OPEC’s April monthly report, world oil demand for 2023 will remain unchanged at 2.3 million barrels per day (bpd),” Simonis Storm added.
While there have been some modest upward revisions to forecast oil demand in non-OECD countries between January and February, the financial firm added there have also been some minor downward revisions in the OECD regions, particularly in the OECD Americas and OECD Europe.
The majority of the growth, predicted to be 2.2 million bpd, will be driven by non-OECD regions, with the oil consumption in OECD regions expected to increase by only 0.1 million bpd in 2023.
“Together, oil demand will increase by 2.3 million bpd for 2023. This underscores the continued shift towards emerging markets as major drivers of oil demand.”
According to Simonis Storm, this conflicting assessment of oil demand helps to explain why oil prices have remained largely stable within the USD 75 to USD 85 range since the year’s beginning.
These additional forces may indicate that Brent crude prices remain flat in the USD 75 to USD 80 per barrel range in the upcoming months and will only increase in response to reports of increased economic activity in Western economies.
Thus, financial firm said, it has been noted that OPEC+ production cut announcements do not result in sustained increases in Brent crude prices.
1.4 million bpd will continue to be the non-OPEC supply in 2023, according to OPEC’s April monthly report.
“This steady growth rate is expected to be driven by the US, Brazil, Norway, Canada, Kazakhstan, and Guyana. In 2022, the main drivers of growth in oil supply were US, Russia, Canada, Guyana, China, and Brazil.”
The US is still anticipated to continue leading growth in oil production this year, with a rise of about 400 thousand bpd.
Brazil, Norway, Canada, Kazakhstan, and Guyana are additionally anticipated to have a substantial impact on the growth rate of non-OPEC oil production.