Petrol and diesel prices will increase by 40 cents per litre by next week Wednesday. This means the fuel pump prices in Walvis Bay will become N$13.55 per litre for petrol and N$13.58 per litre for diesel, with prices across the rest of the country being adjusted accordingly.
The Ministry of Mines and Energy confirmed the fuel increases in its recently completed fuel price review for July 2021, and encouraged fuel consumers to tighten their belts as the country continues to manoeuvre through tough but manageable economic headwinds.
According to the ministry, oil production discipline among the Oil Producing Exporting Countries (OPEC) members and other major oil producers on the supply side, coupled with a positive outlook on the demand side, have ensured an upward trajectory in the prices of crude oil.
A case in point is that the Russian Federation has been insisting on raising output further to avoid an increase in prices, but key OPEC producers, such as Saudi Arabia, have not yet given any clear signals on the next steps to be taken.
There is also a growing consensus in the oil market that the movements in oil prices are more inclined towards the upside as the global economy recovers from Covid-19. Stricter global environmental regulations, aimed at curbing carbon emissions, are also putting more pressure on oil investors and pushing the oil prices upwards in the process.
Meanwhile, amid all the oil market uncertainties, the exchange rate has recorded yet another appreciation of the Namibian Dollar (NAD) against the US dollar (USD) at roughly N$13.8049 per USD during the month of June 2021, compared to the average exchange rate for May 2021 at N$14.0426 per USD.
A currency appreciation usually reduces the under-recovery level and increases the over-recovery level in the final Basic Fuel Price (BFP) calculations.
During June 2021, the per barrel prices of petrol and diesel across the international product market sharply increased from about US$76.68 to about US$79.75 and from about US$73.14 to US$77.67, respectively.
An increase in international barrel prices usually increases the under-recovery level and reduces the over-recovery level in the final BFP calculations.
When taken into full mathematical consideration, the exchange rate appreciation was strongly outweighed by the
increase in barrel prices, resulting in under-recoveries on the current level of the BFP for petrol and diesel.
The latest calculations are, therefore, indicating an under-recovery of 66 cents on petrol and an under-recovery of 55 cents on diesel. There is, therefore, a need to ensure the current level of the BFP is properly aligned with the actual import parity price of petroleum products.
Moreover, the ministry noted that the National Energy Fund (NEF) will cover the entirety of the under-recoveries recorded for the month of June 2021 on behalf of fuel consumers through the equalisation levy.