Diesel price hikes to hit businesses

 Motorists and businesses should brace for more diesel price hikes in the coming few months, a local research firm Simonis Storm has warned. 

This was after the Ministry of Mines and Energy on Monday announced a N$1.98 price increase on diesel to N$24.10 per litre, while petrol prices remained unchanged N$20.08 effective 2 November 2022. 

The latest fuel price increase comes as the country’s mining and the agriculture sectors have already bemoaned the negative impact of high fuel prices, mainly diesel, on their production costs. "This will definitely lead to higher production cost, also for the farmers who have to use diesel on farming machinery," said Simonis Storm economist Theo Klein. 

Agriculture Minister Calle Schlettwein in July warned that the continued rise in fuel prices will have a negative impact on the country’s agricultural sector and will push food prices beyond the reach of many. The Minister had earlier warned that the country’s agriculture sector was under siege from rising input costs, a development that will affect Namibia’s agricultural production, with possible job losses soon. 

Local mining companies, AfriTin Mining, Swakop Uranium and Langer Heinrich Uranium, have all cited high fuel prices for having a significant impact on their operational costs. Langer Heinrich indicated that high fuel prices are driving up its restart costs by an additional 23% to N$1.9 billion. 

Mines and Energy Ministry (MME) Spokesperson Andreas Simon said the ministry expects oil prices to rise in the coming months following the anticipated ban on Russian crude oil by the European Union which is expected to come into effect on the 5th of December 2022. 

"In addition, it appears that OPEC+ has also agreed to reduce crude oil output by about a million barrels per day from the 1st of November 2022, this means that the supply of crude oil throughout the global market will likely decrease in the coming months. When oil supply decreases, oil prices increase," he said. 

Meanwhile, Klein said global oil prices have increased for the first time on a monthly basis since May this year with Brent crude increasing by 7.2% in October, while the Rand depreciated by 2.1%, leading to a 9.4% increase in the Rand oil price. 

He added that with the Reserve Bank in South Africa expected to hike the repo rate by another 75bps in November and if the Rand follows its long run pattern of strengthening in Q4 of each year, the firm then expects further over-recoveries to be incurred on petrol by MME. 

"This in turn could keep local petrol prices unchanged or potentially reduced, with diesel prices still likely to increase given global shortages. In order to observe a material petrol price cut, we need the Rand to strengthen to about 17.55 against the US dollar and for global oil prices to decline and remain below US$90 per barrel in November," he explained. 

Specifically, he observes global oil prices increased from US$88.86 per barrel to US$95.25 per barrel during October 2022, whereas the Rand moved from 17.84 to 18.21 for October 2022. 

"The global oil market is likely to remain volatile as negative macroeconomic data, lower growth in China, expectations of economic recessions and OPEC production target cuts weigh on prices on the one hand and basic fundamentals where demand exceeds supply remain in place and should be price supportive on the other hand," he explained. 

He contends that OPEC production target cuts should not lead to higher oil prices given that most OPEC members were already missing production targets in the past.

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Last modified on Wednesday, 02 November 2022 00:00

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