Following the collapse of global oil prices since the emergence of Covid-19, the Ministry of Mines and Energy has announced a massive N$1.00 per litre decrease for both petrol and diesel prices as of Wednesday, 6 May 2020. This means the new fuel pump prices in Walvis Bay will be N$10.35 per litre for 95 Octane Unleaded Petrol and N$11.13 per litre for Diesel 50ppm.
A sizeable amount of global oil output is used in transportation, by either road, rail or air. Currently, the global transport network has been disrupted and has come to a standstill due to the Covid-19 pandemic. As a result, demand for oil around the world is significantly depressed against a huge supply of oil in storage, which the world does not need right now.
“This imbalance between demand and supply led to the collapse of global oil prices, much worse in the United States where the futures for one of the oil price benchmarks, Western Texas Intermediate (WTI), went below zero for the first time in history. Brent crude, our price benchmark has not been spared as it culminated into sharp falls in refined oil from a monthly average of US$35 and US$43 per barrel for petrol and diesel, respectively in March. The decrease continued to an average of US$22 and US$29 per barrel of petrol and diesel, respectively in April 2020,” read a statement from mines and energy minister, Tom Alweendo. The minister noted that a fall in oil prices was accompanied by a sharp depreciation in the exchange rate between the Namibian Dollar against the US Dollar, which could potentially offset the benefits of a decline in oil prices. However, Alweendo stated that the impact of the fall in oil prices was larger than the depreciation in the local currency. The local currency depreciated from an average of N$16.60 in March to a monthly average of N$19.00 in April 2020. Filtered through the local market, both petrol and diesel recorded huge over-recoveries. “Like all other sectors of the economy, our local oil industry (both bulk importers and fuel retailers) are negatively affected by the national lockdown to curb the spread of Covid-19. Local demand for fuel has dropped significantly to a point where bulk fuel importers are only selling a fraction of what they usually sell and some retailers’ sales are close to nothing depending on their location,” Alweendo stated.
The minister added that the latest Petroleum Activities Report (PAR), which determines the annual return on investment of the bulk oil importers, revealed that oil companies are currently recouping less than they should on their investment. For that reason, the ministry has decided to grant a seven cents per litre increase on the Industry Margin. Furthermore, the ministry has also decided to give a temporary increase in the Dealer Margin (service station owners’ profit margin) of 50 c/l for May, June, and July, subject to monthly reviews to help the retailers get back on their feet. These Dealer Margin adjustments will be also effective from Wednesday, 6 May 2020.