By: Nghiinomenwa Erastus
The OPEC+ member states group decided to keep their oil production levels unchanged at their meeting on 4 October 2021, and as a result, oil prices elevated throughout October.
Another fuel hike could be expected before the end of the year for domestic consumers.
The increase in global crude oil price translated into an under-recovery back home of N$1,32 on petrol and N$1,54 on diesel- where domestic prices do not reflect the true cost of importing.
As a result, through the National Energy Fund (NEF), the government stepped in to cover the entirety of the under-recoveries (price difference) recorded for October 2021 on behalf of fuel consumers.
This is through the fuel equalization levy- for October 2021, the burden covered on behalf of the under-recovery is approximately over N$120 million.
With the local prices trailing back with $1,32 on petrol and N$1,54 on diesel compared to international prices, the Ministry of Mines and Energy (MME) therefore decided to increase local fuel price for November 2021.
As effective today (03 November 2021), petrol and diesel prices are 50 and 70 cents per litre, respectively, in line with our expectations.
Petrol and diesel prices will therefore increase to N$14,95 and N$14,88 respectively, from today.
NAM IS A PRICE TAKER
This is the seventh fuel price hike by MME for 2021.
According to the MME team, there was a need to ensure that local fuel prices reflect the movement in the international market to maintain the security of supply in the country.
With this being the seventh fuel price increase domestically for the year, economic participants have shown their displeasure on the move via social media.
MME spokesperson Andreas Simon said Namibia is a price-taker regarding fuel prices despite its billion-fuel storage at the coast.
“The country does not yet have crude oil resources and crude refinery of its own through which it can hedge against these oil price volatilities apart from the National Energy Fund fuel equalization mechanization,” wrote Simon.
He added that consumers need to understand that government has only direct control at the domestic level through levies, taxes, and margins on fuel price.
While major oil producers and OPEC heavily influenced the prices of petroleum prices.
The MME revelation also came when early this year told The Villager that a new oil storage facility would ensure the stability of the fuel prices in the future, “through the safe import of bulk fuel in a manner we have not been able to do before”.
The energy fund has been taking up the burden if not passed on to economic agents.
The ministry said early this year that the Storage Facility has assisted in maintaining the fuel price stability in a very volatile market. The country has been extremely robust in managing external shocks in terms of market price and price stability after the inception of the storage.
MME defended the construction of the Bulk Storage, saying it is due to the immediacy of the need for security of fuel supplies in the country.
However, when they were quizzed on why the country did not invest in a refinery given the Angola endowment, it said the government was mindful that a refinery might eventually prove feasible should the necessary agreements related to the import and allocation of crude oil be implemented.
Whenever the MME incurs over- recoveries, the surplus is transferred to the NEF and forms the only source of income for the Fund.
Insights have also revealed that one of the reasons Namibia has lower fuel prices than South Africa is the under-recoveries being financed by the NEF.
In South Africa, under-recoveries are passed through to consumers, which drives their prices higher than Namibia.
South Africa is also expecting a fuel hike today of N$1,21 a litre, and diesel will go up by N$1,48 a litre.
Petroleum imports are usually the second or third biggest import product by value for Namibia.
“Implying that higher oil prices are a concern as they are a key inflation component, Simonis Storm’s insight reveals.
Year to date, petroleum imports account for 9,5% of total imports on average.
Moreover, the petrol/diesel sub-category (up 6,8% year to date) is the biggest driver of transport inflation in Namibia.
Simonis Storm’s insights highlighted that given the country’s weaker pegged-to-currency/Rand and higher global oil price expectations, “we do foresee at least one more fuel price hike by the MME before the end of the year”.
They added that the increase and the expectation for more hikes are adding to fears of the global economic recovery being derailed due to higher energy prices.
Many countries have called on the group of oil-exporting countries to increase production further, given that oil prices have increased significantly this year.
The oil-exporting group will meet again on 4 November 2021.
According to Simonis Storm insights, it is widely expected that they will decide to keep production levels unchanged, despite political pressure from different countries.
Crude oil prices have increased from $79,28 to $83,83 during October-reaching their highest level since 2018, supported by rising demand for energy alternatives amidst shortages of coal and gas mostly experienced in China and Europe.
Brent crude oil is the raw material from which refined petrol and diesel products are extracted, and the increase in raw material cost automatically reflects on the finished products.
West Texas Intermediate (WTI), one of the crude oil benchmarks, reached its highest level in seven years on 28 October, increasing from $75,88 to $81,88 during the current month, while brent crude oil price forecasts range between $90 and $100 by the end of this year.
Global oil demand has surpassed 99 million barrels per day. According to Goldman Sachs, it will likely reach pre-pandemic levels of 100 million barrels per day by the end of this year due to an economic rebound in Asia.
In addition, the falling Covid-19 cases across Europe, the US, and certain Asian countries are fuelling expectations of a rise in oil demand for the upcoming months.
Last week, the Energy Minister of Saudi Arabia indicated that oil demand might rise by 500,000 and 600,000 barrels per day if the Northern Hemisphere experiences a colder than typical winter.
According to Simonis Storm insight, despite spare capacity in OPEC+ member states remaining at elevated levels.
OPEC+ has agreed to increase daily oil production by 400,000 barrels per day in July 2021.
However, actual production data shows output cuts of 15% in September, 16% in August, and 9% in July, revealed Simonis Storm. firstname.lastname@example.org