The impact of production cuts by OPEC+ members is beginning to affect Namibian fuel prices.
This is according to Abednego Ekandjo, a petroleum economist at the Ministry of Mines and Energy.
Mines and Energy Ministry revealed on Monday that motorists would have to pay extra for fuel starting today.
The price of petrol in Namibia will rise by 120 cents per litre, while diesel prices will climb by 170 cents per litre.
Petrol will cost N$20.98 per litre in Walvis Bay, while diesel 50ppm will cost N$20.75 per litre and diesel 10ppm will cost N$20.95 per litre.
The ministry also stated the hike is the result of OPEC+ members agreeing to limit global oil production in July, and that current high oil prices are caused by excess demand paired with a supply constraint.
In an interview with Eagle FM, Ekandjo stated the effect is just now being seen in Namibia because the market reacts quickly, but dissemination takes time, and that the influence might persist for a long time.
“When crude oil inventories are low, you expect that impact to last for a long time,” he said.
“Those cuts have a major impact on the global economy because OPEC controls around 50%, global crude oil production. That decision to cut crude oil has a major impact, this is why we are seeing prices increasing,” Ekandjo added.
He also mentioned the currency rate as a consideration.
The exchange rate numbers for the period 01-29 August 2023 show a 3.7% depreciation of the NAD versus the USD, with the NAD trading at N$18.84 per USD, compared to N$18.18 per USD at the end of July 2023.
When asked how long this production cut will have an effect on local fuel prices, Ekandjo answered it depends on what OPEC does next.
“But if you look at the analysis that is out, it is like OPEC wants to carry on with these production cuts into next year so the situation looks bleak as far as oil production from OPEC is concerned,” he said.
He went on to explain, that until something huge happens or another nation decides to raise output, the market is looking dismal.
Saudi Arabia said last month that it will decrease its output as part of a larger OPEC agreement to curb supplies through 2024 in order to bolster oil prices.
At the time, the country announced that its output will fall by 9 million barrels per day in July, down from roughly 10 million barrels in May, the largest decline in years.
According to High Economic Intelligence managing director Salomo Hei, the increase announced by the Ministry of Mines and Energy would have an inflationary impact.
This fuel price hike comes at a time when Namibia is seeing lower inflation.
At the end of August, Namibia’s 2023 inflation rate was projected to be 5.6%, 0.4 percentage point lower than in June.
“The increase is an indication that we will definitely be paying more but what is more important is to note that this will have an inflationary impact because we thought that headline inflation was coming down,” he said.
However, Hei stated the most troubling one that would keep inflation higher for longer is core inflation, and the spike in fuel costs that Namibia is experiencing as a result of OPEC’s actions may have an influence on future interest rates.
“This is what we now call second round effects because the core inflation is the utility which is water and electricity so production and manufacturing will definitely go up because one will be paying more for utility,” said Hei.
Hence he said he foresees continued negative production growth and another interest rate hike in the future.
Hei went on to say the growth is absolutely out of the control of consumers, households, and businesses, encouraging them to continue to prioritise what is essential for them.
“There is also a need to diversify income strength because it would potentially assist in the income generating fight,” he said.
OPEC, an association of petroleum exporting nations and allies led by Russia, consumes over 40% of the world’s crude oil, implying that its policy decisions have a significant influence on oil prices.
Oil producers, led by Saudi Arabia, had announced an unexpected production cut of more than one million barrels per day from May. The unexpected move to reduce supply briefing had driven world benchmark Brent crude oil up roughly $9 at the time.
OPEC has implemented cutbacks of 3.66 million barrels per day, or 3.6 percent of world demand, including two million barrels per day agreed last year and 1.66 million barrels per day agreed in April.
These cutbacks are valid through the end of 2023, but they were extended in August following seven hours of discussions.
The Namibia Bus and Taxi Association (NABTA) has spoken out against the rise in local fuel prices.
Pendapala Nakathingo, the chairperson of the association, indicated the organisation does not understand or approve the surge.
He said that transport companies already face a huge burden.
“This has a negative impact on the industry. Therefore, we don’t understand and we will never support such an increment, ” he said.
Nakathingo asked that the rise be reconsidered or that transport providers be excused.
“We urge the ministry to reconsider the increase; otherwise, the transport industry should be exempt from this increase,” he said.
He stated the industry has been suffering and has reported its problems to the government, but claim their concerns have not been taken into account.