Industry not betting on long-term low oil prices
Commodity to settle near $80
A LOWER oil price should give companies operating in Africa a lift, but industry is not banking on it as a long-term elixir.
“In time a lower oil price will probably help the economy in Africa, because it is a key input cost… But that is not the panacea,” Nick Holland, the chief executive of Gold Fields, told the Reuters Africa Investment Summit.
Overall, oil usage in Africa is low, with the continent’s consumption in 2013 only 3.6 million barrels per day, about 4 percent of the global total, according to the US Energy Information Administration.
But since 2000, African oil consumption has risen 44 percent faster than any region outside of the Middle East, and key sectors such as mining rely heavily on petrol and diesel.
Gold Fields operates two mines in Ghana, which consume about 100 million litres of oil a year. Holland said the benefits for his company from a cheaper price remained in the pipeline.
“We’ve not seen the benefit yet, because the way they run the oil account is they try to smooth out the peaks and balance out the troughs. So when oil was up at $120 (R1 443 at Friday’s rate) a barrel they did not pass all of that on to us, which helped us,” he said.
“Conversely when oil went down to close to $40, we’ve not really seen the benefits pass to us yet. I think if it prevails at these levels for another 12 months we’ll start seeing the benefits flowing through.”
But Holland does not expect this to be the case.
“We don’t think the low oil price will be sustained. We looked to try and hedge the oil price in Ghana because we use 100 million litres a year in our operations there,” he said.
“When oil was at spot $45 a barrel we tried to hedge it and the forward price was in the 70s. I think a lot of the market participants are discounting higher oil prices,” he said, adding that Gold Fields’ view was that oil would settle at around $80.
Analysts say few investors are expecting oil to fall back to its recent troughs.
In South Africa, the falling oil price has coincided with a power crisis that has seen rolling outages almost daily, cancelling out much of the benefits for growth of cheaper prices. Still, there is a silver lining here.
Tshediso Matona, the chief executive of cash-strapped Eskom, told the summit the power utility was taking advantage of cheaper diesel to keep some of its turbines running.
Eskom, which uses about 150 million litres of diesel a month, could not fully reap the benefits offered by cheaper fuel prices because of lacking infrastructure. – Reuters