Fuel price to drop on Wednesday

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By Staff Reporter

WINDHOEK – Plummeting oil prices will bring more relief to Namibian motorists when petrol and diesel prices decrease below the N$10 per litre mark at 00h01 on Wednesday February 4 2015.

The global price of crude oil, which has been around US$100 per barrel for the past six years has been collapsing and is now trending below US$50.

While many observers are trying to understand this rapid decrease and have proposed various explanations, Namibian motorists will be paying N$1.00 less for petrol and N$1.20 less for all grades of diesel.

“Of course, the ready explanation is simply in terms of supply and demand, but this does not fully explain matters. The supply of oil has increased sharply in recent months, mainly because of the prolific production of shale oil in the United states, thanks to the technologies of fracking and horizontal drilling. In fact, the US is now the world’s largest producer of crude oil and US imports of oil have dropped to the lowest level in 10 years,” said Mines and Energy Minister, Isak Katali.

In a statement announcing the decrease released on Friday, Katali said that at the same time the demand for oil has not increased greatly, because of depressed economic conditions and the more fuel efficient use in cars and trucks throughout the world.

US imports peaked 10 years ago at 10 million barrels per day and have been dropping rapidly. Chinese imports have been rising steadily and now exceed five million barrels per day.

One of the questions raised in trying to explain oil’s declining price is why Saudi Arabia, considered to be the linchpin of the Organisation of Petroleum Exporting Countries (OPEC), permuted the oil price to collapse. “Clearly, it is not in their best economic interests, from a strictly profit-maximizing point of view. Obviously, there are political considerations involved, which override simple economics,” said Katali.
The Mines and Energy Minister said the general view is that Saudi Arabia is permitting the price to collapse in order to put pressure on their main competitors in the oil business. They are doing this by not cutting their production, willing to reduce profits in the short-term.
“Russia is one of their competitors and a major supporter of the Alawite Syrian regime, anathema to orthodox Sunni Saudis.

“Russia, buffeted by sanctions imposed by the United States and Europe over her adventures in the Ukraine, is currently in bad economic shape and highly dependent on oil revenues and investments in oil exploration from outside companies.

“The same is true of Iran, a more immediate threat to Saudi Arabia. Shiite Iran also supports the Syrian regime and is feared to stir up anti-Saudi sentiment among the Shiites of the eastern Saudi oil-producing region. Allowing the price of oil to collapse fulfils certain political objectives for Saudi Arabia, which may improve its security,” said Katali.

“Then there is the United States and Canada. Shale oil and tar sands are expensive to produce and cannot yield much of a profit if the price drops below US$50. So letting the world price drop below US$50 is yet another way of eliminating more Saudi competition.

Of course, at any time they wish, the Saudis can cut their production and thereby raise the world price, after they have halted their competitors. Once competition is brought under control, it can take years before production can be revved up again,” explained Katali.

“Last year TransNamib Holdings Ltd requested the Ministry of Mines and Energy to consider a fuel transport tariff adjustment as the cost of doing business has gone up. After the last fuel price review meeting, the ministry has decided to increase the fuel transport levy by 10 c/l on all petroleum products. The adjustment is effective from 4th February 2015,” said Katali.

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