Sunday, January 29, 2023

Fuel prices coming down but crisis continues

The Botswana Energy Regulatory Authority (BERA) has followed with another fuel price reduction, giving reprieve to households and businesses’ income and budgets which have been choked by high inflation.

On Thursday, BERA reduced retail pump price of unleaded petrol 93 by P1.75 to P14.42; unleaded petrol 95 was cut by P1.83 to P14.64: diesel received a small decrease of P0.15 to retail at P17.56. The energy regulator said the downward adjustment was made possible by the fall in oil prices, dragged down by the strengthening US dollar, rising interest rates and fears of a global recession. 

“Firstly, a stronger US Dollar tends to curtail the demand for oil as buyers or holders of other currencies must spend more to buy oil. During the month of September 2022, the US dollar was reported to have climbed to its highest level in 20 years thus limiting the purchasing ability of non-dollar consumers,” said Nnosang Mhutsiwa, the acting chief executive officer at BERA.

“In addition, central banks around the world have been increasing interest rates to curb the surging inflation, which has led to fears that this could trigger economic slowdown. Finally, synchronous interest rate hikes imposed by the world’s most powerful central banks in recent months have triggered mounting concerns of a global recession.”

Diesel price continued to fall by a smaller margin mainly due to a tighter diesel market as power generators and industrial users have now diverted to using diesel as an alternative to natural gas. This has increased the demand for diesel hence the slight decline in its price, BERA said in the statement.

The regulator has adjusted fuel prices five times this year, increasing the costs of fuel in March, May and June, adding to the past seven increases that happened from late 2020. BERA decreased fuel prices in September, making the first decrease snice fuel prices were last reduced in June 2020. Factoring in the five rate changes this year: retail pump price of unleaded petrol 93 is up by P1.92; petrol 95 has increased by P2 and diesel rose the most by P5.13.

On a two year period, fuel costs have risen significantly. From June 2020 prices, petrol 93 retailed at P7.68, and compared to the prevailing October prices, it has surged by 88 percent. Petrol 95 has jumped from P7.76 by 89 percent to the current price. Diesel has had the most significant increase, ascending from June 2020’s P8 price to the current P17.56, representing a 120 percent increase.

The high costs of energy has been on the back of rising oil prices. The Brent crude oil averaged $42 per barrel in 2020, with demand suppressed by the COVID-19 pandemic. As the world returned to some sense of normalcy in 2021, average price per barrel increased to $70. The pace of the increase was accelerated in February 2022 when major oil producer Russia invaded Ukraine, sending the cost of Brent crude oil to spiral, averaging $105 in the first half of the year.

Oil prices started to cool in August, down to a combination of several factors that weakened global oil demand: a stronger dollar, fears of global economic recession, increased inflationary pressures worldwide, which have resulted in rising interest rates.

As a result of high oil prices, Botswana’s inflation rate reached double digit growth this year, hurting households and businesses due to reduced purchasing power. Annual inflation averaged 1.9 percent in 2020, and more than tripled to 6.7 percent last year. In the three quarters of 2022, the annual inflation rate is at 12 percent, with the highest monthly rate recorded at 14.6 percent in August, reflecting a 14 year historic high.

To tame the spiraling inflation and bring it down to Bank of Botswana’s tolerable range of 3-6 percent, the central bank has effected sharp interest rate increases, rising the monetary policy rate three times this year, from 1.14 percent rate to 2.65 percent. The combination of high inflation and interest rates is expected to weaken economic growth.

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