By Josef Kefas Sheehama
The Minister of Mines and Energy has announced decreases across the board on the prices of fuel prices from Wednesday, paving the way for some relief for consumers. This marks the first month of decreases following increases experienced this year. This means fuel prices have been reduced to N$1.20 for petrol and N$0.65 for diesel.
We applaud the Government for this positive development, the reduction has been made possible due to the good economic policies pursued by the Namibia Government. We should never fail to celebrate and acknowledge the efforts made by our government for the people and the betterment of our nation and its pride. The fuel pump prices affected the cost of living, as fuel drives the prosperity of the economy for any nation and should therefore be readily available and at affordable prices. With the Russia-Ukraine conflict continuing to impact the price of crude oil globally, this has had a direct impact on fuel prices in Namibia. Even if government take petrol down, the economy can’t just rise because of reduced petrol prices. Only two to three months then petrol prices will rise for more than they have reduced it. The aim is to reduce pump fuel prices in the bid of reducing the cost of living. The reduced pump price is good news for final consumers. For consumers of fuel, there will be reduced pump prices. It implies that one can afford to buy and use more fuel or have more disposable income after fuel purchase. In all of the above, the ceteris paribus condition has to hold. It’s not only about fuel prices, it includes spare parts among other things. Even if you reduce fuel prices, it’s only one component of the cost. The other components are still intact, and they are still going up. So the reduction in fuel price alone will not be enough to compensate for the other costs. That’s why I am saying food prices will not come down, transportation costs will not come down, and the overall effect is that food prices will go up. The poor and vulnerable will bear the brutal brunt of these incessant.
As we come to accept that our world has changed, probably permanently, we’re forced to face the fact that we can no longer count on the future looking like what we expect it to be. We have no idea what the near future is going to look like. Of course, we must do what we can to figure out how to navigate the known changes. Living in an uncertain world is going to take a certain amount of letting go. Living in the present, knowing you’ve done everything you can to adapt and prepare, will help you feel more confident in the knowledge that no matter what happens, you will find your way through it. Namibia has no crude oil reserves of its own and about 79 shipments are imported. Petrol and diesel are the major liquid fuels that are used in Namibia. The government regulates wholesale margins and controls the retail price of petrol. Namibian petroleum prices are regulated, based on import parity price formulas. This means that the domestic price is influenced by the supply and demand for petroleum products in international markets, combined with the NAD/dollar exchange rate.
World Oil Outlook
OPEC and OPEC+ cut production slightly on 05 September 2022, a surprise to energy international communities who had anticipated the group would maintain its current production levels. Namibia is not excluded from this shocking reversal in a production cut by OPEC. According to various sources, the two energy alliances chose to reduce production by 100,000 barrels per day in October. OPEC+ said in a statement that its decision to reverse its strategy and head back to August levels of production was because the change has been intended only for September. The cutback came as a surprise for many traders, who had expected the Organization of Petroleum Exporting Countries and its partners to hold production steady as oil prices above $90 a barrel squeeze consumers. The market also looks set to get even tighter in the coming months as the EU imposes sanctions on Russian exports. Shortages in production, as well as in refining capacity, have left OPEC producers with little they can do to maintain oil prices level.
Therefore, the decision of OPEC+ will affect countries including Namibia which are already affected by the economic crisis. This change is a fact of life for drivers all around the world. When consumer demand for a commodity rises, the supplier will meet that demand at a higher price. Supply and demand are going to continue playing a role in the price of oil. This supply and demand is a part of the world of the fuel retailer and wholesaler. Therefore, demand will exceed supply which will aid the Ministry of Mines and Energy to increase the prices of oil and gas. Russia-Ukraine geopolitical tensions are now threatening to further disrupt energy supplies, with the potential to push price increases higher and shift monetary and fiscal policy. The Bank of Namibia will take a pro-cyclical stance and hike interest rates by 100 basis points by the near end of 2022. Geopolitical tensions are also threatening to drive up energy prices and drag headline inflation. High energy prices and limited supply will make our economy especially vulnerable to any additional energy shocks, exacerbating the repercussions of current geopolitical tensions.
To that end, sanctions on Russia will shake the world economy for years. We are now facing an environment of significantly higher commodity prices, which could persist for longer than many would anticipate. It will raise inflation and reduce economic growth, posing an extremely challenging problem for policymakers.