WINDHOEK – The Ministry of Mines and Energy (MME) and other industry experts expect oil prices to keep falling for the rest of the year as global supply is outstripping demand.
In a statement released late last week, the acting Minister of Mines and Energy, Erkki Nghimitina, said supply of US shale gas alone can cover global demand this year, and unless the Organisation of Petroleum Exporting Countries (OPEC) reduce their production, or unless a fresh geopolitical concern occurs, the best estimate now is a market characterized by or associated with falling share prices.
Motorists will not be complaining this week as the global oil price scenario has prompted the MME to announce that petrol and diesel prices will decrease by 30 cents per litre (c/l) at one minute past midnight on Wednesday, November 05, 2014. What remains to be seen is whether transport and food prices will follow suit.
The new price for 95 octane unleaded petrol is now N$11.96 per litre, while diesel 500ppm and diesel 50ppm will go for N$12.12 and N$12.22 respectively.
In his statement Nghimitina explained that despite ongoing geopolitical risks, the crude oil price has been on a downtrend. He attributes this to increasing production from shale oil and gas fields in the United States as well as a decrease in oil consumption compared to the production rate.
“The temporary and fragile ceasefire between Russia and Ukraine has also relieved expectations of a disruption in oil supply,” said Nghimitina.
“At the beginning of October we observed that crude oil exports are on the rise in Russia, Libya and Kurdistan. Also, Saudi Arabia cut prices for the fourth straight month to defend its market share, suggesting it is unlikely to cut production anytime soon,” he continued.
Nghimitina added that a further contributing factor to the drop in oil prices has been the appreciating US dollar. Crude is traded in US dollars on international markets.
As of yesterday at about 10h00 the Brent crude oil price stood at US$85.86 after having dropped 20 percent for the quarter, the most it had declined in two years.
“The price of crude oil is therefore negatively correlated with the US dollar index. When the US dollar appreciates, international traders need more of their currencies to exchange for one US dollar and naturally demand for the US dollar will go down, along with the demand for crude,” Nghimitina continued.