Wednesday, June 29, 2022

Low oil prices: Gov’t should either reduce fuel prices or increase reserves

Oil Prices have been dropping sharply over the past three months ÔÇô this could be considered a huge energy story given the major repercussions it has for a lot of countries including Botswana.

It is quite evident that many of the commodity markets have been going higher in recent weeks except for the energy sector with heating oil and unleaded gasoline both hitting new lows once again by Friday.

The serious free-fall of prices on Friday might have been aligned to OPEC ÔÇö a cartel of oil producers that includes Saudi Arabia, Iran, Iraq, and Venezuela. The said countries had a big meeting in Vienna on November 27. Before the gathering, there was speculation that OPEC countries might cut back on their own oil production in order to prop up prices. But in the end, the cartel couldn’t agree on how to respond and did nothing.

As a result, market expectations are that oil prices might weaken further to levels around $65/barrel if the current over supply situation is unchanged. For us at the Sunday Standard these changes in demand and supply suggest that the future price of oil will be lower than what industry participants expected until just a few months ago. The big question is how as Botswana, a tiny landlocked country that imports fuel, are we taking advantage of these prices, which are historically low?

Recently the government unveiled a key player in the oil and gas industry being the Botswana Oil Limited. The government owned company is expected to, amongst other things safeguard and ensure efficiency of the country’s national fuel supply. What is not quite clear to us at the moment is whether the executive of the company or the government has seen the need to take advantage of these low prices. We need to buy up supply for strategic oil reserves as prices might change again negatively in the future.

There is no doubt that unlike oil producing countries, to us this lower oil prices are unambiguously positive. It is for this reason that Botswana Oil Limited should take advantage of low oil prices and increase our reserves.

One of the major challenges that have been facing our economy is the dependence on a single source of supply of petroleum products. But we trust that the Botswana Oil Limited continues to address the matter. This could be done through forming strategic partnerships that will facilitate the diversification of sources of product. We have been informed that already the company has entered into cooperation agreements with regional national companies like PetroSaSouth Africa, Namcor Namibia and Petromoc Mozambique.

Such agreements should enable BOL to achieve economies of scale with a view to procure and deliver products at competitive prices. Through attainment of its strategic intent, BOL will somehow be contributing to the domestic economy development. In the meantime the #Bottom-line is that there is no other better time to increase our fuel reserves at a cheaper price than now. If there is no such intention then the government should reduce the prices so that when prices pick up again consumers do not feel the pinch.

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