Saturday, July 2, 2022

Crude oil price spike threatens to lift up inflation

Financial analysts this week warned against the threat of dark clouds of crude oil price spikes that are being driven by the global economic recovery.

Crude for February delivery increased as much as US $1.95 to US $89.98 a barrel in electronic trading on the New York Mercantile Exchange on Monday. It was at $88.87 a barrel in Singapore in the afternoon.

The contract fell 3.7 percent last week, the most in seven weeks. Futures gained 15 percent in 2010.

The latest figures are the second highest since 2008 when it reached a record high of US $148 per barrel before it was dampened by the worst global economic recession since the Great War. This is third most significant increase to affect the global economy since 1970 when the world first experienced the highest crude oil prices at US $ 70 per barrel.

Botswana’s main trading partner, South Africa, adjusted its pump prices last week by 29 cents per liter.

“The prices are being driven by the bullish outlook that we┬áare likely to see some┬áeconomic recovery rather than some supply constraints,” head of Capital Assets Management, Leutlwetse Tumelo, said.

“The implication of that would translate into an increase in pump prices which will mean that retailers and manufacturers┬áwill have no choice but increase prices,” he added.

The move is likely to  put Bank of Botswana  attempts to control inflation  on a back foot  at a time when it was expecting the 12 percent  Value Added Tax (VAT)  to be falling out of calculations.
According to November Consumer Price Index (CPI) inflation stood at 7.2 percent- one of the lowest during the yesteryear.

The outlook further┬áreinforces business community’s sentiments expressed in the recent Business Expectation Survey where a significant percentage of respondents “doubted” the┬áCentral Bank’s competence in reining in inflation to its target range.

The Central Bank has given itself a target range of three-to- six percent inflation target which it has rarely achieved. It is expected that it will reinstate its believe of containing inflation within that range when it announces its Monetary Policy Statement early next month.
The respondents on the Bank of Botswana survey clamoured for “prudential measures” as exchange ratesÔÇöespecially the Pula┬áand Rand┬áare moving towards parity.

“The United States, China and Europe have seen economic recovery gaining momentum. There are positive economic indicators more than expected. This will exert pressure on fuel prices as fuel demands grow. What is happening in the international scene will affect South Africa and us,”┬áa Research Analyst at Motswedi Securities, Karabo Tladi, has said.

China’s crude imports in 2010 climbed to 239.3 million metric tons, according to the Beijing-based General Administration of Customs. That’s about 4.8 million barrels a day. December imports declined to 20.86 million tons from 20.9 million the month before.

Brent crude for February settlement rose as much as US $1.37, or 1.5 percent, to $94.70 a barrel on the London-based ICE Futures Europe exchange on Monday. On Friday, it decreased US $1.19, or 1.3 percent, to US $93.33. The more actively traded March contract was at US $93.75.

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