That Oil prices were a big energy story in 2014, atleast the last two quarters and that they remain a big story for 2015 is a known fact. We also know that OPEC’s decision to keep its output and the International Energy Agency’s downward forecast on crude demand has led to brent crude prices plummeting to 5 year lows of below $50/barrel which is positive for oil importing countries such as ours. What is unknown is how long the prices will remain this record low.
With OPEC’s recent shift in attitude in the last few months – cutting oil prices and seeking to regain market share- there remains a question of how long OPEC and its members will stay this course. Should attitude and policy reverse towards a desire of higher oil prices, this may dramatically alter our economic outlook in Botswana. An upward movement in fuel prices would certainly have a chilling-effect on our domestic consumer inflation.
As you all might be aware, by close of business this week Brent crude, the international benchmark, fell as low as $49.66 a barrel dropping below $50 for the first time since 2009.
Market figures further shows that fuel prices dropped 48 percent in 2014 after three years of the highest average prices in history. West Texas Intermediate, the US benchmark, plunged to as low as $46.83, about a 56 percent decline from its June 2014 high.
This serious free-fall of prices in the last two quarters of 2014 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. What remains to be seen is how countries such as ours intend to benefit from the current scenario.
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, a government owned company should take advantage of these low oil prices and increase our reserves. If at all our reserves are already at full capacity, then the next noble thing to do is to give consumers yet another slash in prices.
With our neighbour South Africa having announced a significant slash in fuel prices on Wednesday, we strongly believe that even in Botswana there is scope for the price of a litre of both petrol and diesel to come down. The reduction will also help us to keep pace with plummeting oil prices, atleast when they start rising again.
In its communiqu├® on the last reduction, held in early December 2014, the government stated that it will continue to closely monitor the prices of petroleum products in both regional and international markets and make price adjustments as necessary. We believe that now is the time to make that adjustment. The #Bottom-line remains, “there is no other better time to keep our fuel reserves at full capacity while maintaining the best possible cheap consumer price than now.”