WINDHOEK – Following yesterday’s 40 cents per litre fuel increase for petrol and diesel, a local economist has cautioned motorists to brace for further increases. According to Klaus Schade, a Research Associate at the Economic Association of Namibia, more pressure can be expected on local fuel prices mainly due to the continued depreciation of the Namibian Dollar coupled with global oil supply uncertainties. 

“Motorists therefore need to prepare for further fuel price increases. The fuel price hike combined with the increase in taxi fares will push up transport inflation in September and hence the overall inflation rate. The price increases can encourage a more efficient use of transport equipment, the switch to more fuel-efficient equipment or the shift to equipment fuelled by other forms of energy, such as batteries,” said Schade in a commentary on the latest increase. 

He noted that the continuation of the depreciation of the Namibian Dollar against major currencies as well as oil supply-side uncertainties, owing to the ban threatened by the United States of America’s administration on Iranian oil from November onwards, are likely to exert further upward pressure on domestic fuel prices. 

“So far, the National Energy Fund (NEF) has absorbed the bulk of under-recoveries in recent months. However, the NEF only smooths strong price fluctuations, but will not avoid price rises if import costs of oil exceed pump prices over a longer period,” Schade stated. 

Schade explained that the reason for the price hike is the depreciation of the Namibian Dollar against the US Dollar. The Namibian Dollar depreciated by 6.6 percent from N$13.43 per US dollar in July to N$14.11 per US$ in August (calculated on daily exchange rates of the South African Reserve Bank). 

“The depreciation outweighed the drop in average Brent Crude oil prices from US$74.25 per barrel in July to US$71.69 per barrel in August (US Energy Information Administration daily data) and resulted in an increase of oil prices in Namibia Dollar from on average N$997.17 in July to N$1,011.33 per barrel in August. 

Schade pointed out that the latest increase is the fourth consecutive monthly fuel price increase for the country except for Walvis Bay, which was spared the adjustment in the transportation cost in July.  

This week’s 40 cents a litre increase means petrol prices are up by 11.2 percent and diesel prices by 13.6 percent since the beginning of the year. Petrol is 20.2 percent and diesel 25 percent more expensive than in September 2017. Since June 2018, fuel prices in Namibia have exceeded previous price peaks experienced four years ago. 
“Motorists had to pay N$12.51 per litre for petrol and N$13.05 per litre for diesel 500ppm in June 2014. However, taking inflation into account over the same period, real fuel prices are below levels in September 2014.  

Since April 2018, the National Energy Fund incurred under-recoveries (pump prices were below actual costs) of 324.63 cents per litre for petrol and 310.51 cents per litre for diesel 50ppm. Fuel price increases recovered only N$1 per litre for petrol and N$1.30 per litre for diesel 50ppm, resulting in a subsidy of 224.63 cents and 180.51 cents per litre respectively,” read Schade’s statement.