WINDHOEK – Record low crude oil prices coupled with decreased demand for oil attributed to the US dollar appreciation will result in a decrease in petrol and diesel prices by 50 cents a litre this week Wednesday. This latest decrease will bring 95 Octane Unleaded Petrol down to N$11.19 per litre while diesel 500ppm and Diesel 50ppm will be reduced to N$11.62 per litre and N$11.72 per litre respectively at Walvis Bay pump prices.
“We observed that the world might have hit the bottom on crude prices. Ever since Saudi Arabia boosted production and cut prices in August, oil watchers have wondered how far crude could fall. This divination requires an understanding of geopolitics as much as economics because oil does not really trade on a free and transparent market,” said Minister of Mines and Energy, Isak Katali, in statement released last week.
The minister added that the oil price is based on how much oil the largest producers put on the market and what price they want to charge, which is a figure that is often decided amongst a small clique of Middle Eastern nations.
Katali said that most members of the Organisation of Petroleum Exporting Countries (OPEC) rely on oil revenues to pay for government services, which he said can be very generous and expensive to maintain public support.
“The US has nearly doubled oil and natural gas production since 2007, when drillers began perfecting shale wells with hydraulic fracturing. This has meant a dramatic cut in imports, which means more oil on the international market and more competition for customers,” said Katali.
Saudi Arabia, which has traditionally modulated prices by expanding or contracting production, grew frustrated this year with other OPEC countries cheating on their quotas and with the western hemisphere’s boost in production. “Rather than cut production to keep prices high, Saudi Arabia decided to cut prices in hopes of retaining market share while curbing competition. The economics are becoming clear. The world’s biggest producers will accept lower prices to force out competition, but keep them high enough to continue finding and producing more oil,” said Katali.
During the last quarter of November, expectations of growing US crude prices supplies sent world oil prices sliding to a new four-year low and are turning up the heat on OPEC members to cut production.
Now the market is highly focussed on whether OPEC members will get over their differences and cut production.
Saudia Arabia, the biggest producer, has indicated that it does not want to go it alone with a production cut, and it has been adjusting its official selling price to maintain market share, particularly in Asia.
Furthermore, Katali noted that the current US dollar appreciation has continued to weigh on the demand of crude oil, which often moves inversely to the US currency.
“A stronger dollar makes oil more expensive for buyers using foreign currencies. Meanwhile, US production is growing at a time when OPEC appears reluctant to scale back output, prompting forecasts that the market could remain oversupplied in the near future if current trends continue,” said Katali.
He added that although Namibians continue to feel the pressure of petrol costs, the price that is paid in the country is below the global average of N$14.30 a litre.
Katali noted that the international oil market took a price cut in the first quarter of November, as another sign Saudi Arabia is willing to use pricing as a lever to preserve its market share rather than cut production in what is now an oversupplied market.
“Even if this was not the intention, some traders took the Saudi move as a sign the kingdom would like falling prices to slow US shale production,” said Katali.
By Edgar Brandt