OPECs new price hawk, Saudi Arabia wants Oil closer to USD100/bbl. What it could mean for Zambia
OIL futures are trading for USD73/bbl. on the New York Mercantile Exchange – NYMEX. The rally for crude came after markets priced-in a decline in US crude inventories, and after sources signalled top exporter Saudi Arabia wanted to see the crude price closer to $USD100/bbl. Oil cartel Opec’s new price hawk, Saudi Arabia, would be happy for crude to rise to $USD80 or even $100/bbl., three industry sources said, a sign Riyadh would seek no changes to a supply-cutting deal even though the agreement’s original target was within sight. Opec’s ministerial committee tasked with monitoring the group’s supply-cutting deal with nonOpec countries, led by Russia, met in the Saudi city of Jeddah on 20 April. “Despite an oil price of over $70/bbl. and the fact that the oversupply has been eliminated, a phase-out of the production cuts will not be on the agenda,” Commerzbank oil analyst Carsten Fritsch said. Oil has been supported by the perception among investors that tension in the Middle East could lead to supply disruptions, including renewed US sanctions against Iran, as well as falling output in crisis-hit Venezuela. Geopolitical risk also pushed crude higher Dutch bank ING said in a note to clients that Brent had risen back above $70 in April “due to geopolitical risks along with some fundamentally bullish developments in the market”. It raised its average 2018 price forecast for Brent to $66.50 from $60.25/bbl., and its 2018 WTI forecast to $62.50 from $57.75/bbl. For next year, however, ING expects lower prices due to rising US crude output, which has jumped by a quarter since mid-2016.’ Meaning for Zambia From the last time a furl price adjustment was announced in Zambia by the Energy Regulation Board – ERB, crude prices have risen 7.35% higher to $USD73/bbl. The Kwacha has however appreciated 3.2% to ZMK9.65/USD levels cushioning the crude price spiral. However, all things constant a rise in the price is an early warning signal of another fuel price review for Zambia which is a net importer of the commodity. A 7.35% rise in the Oil price versus an offset in the local currency appreciating effects still exceeds the 2.5% ‘ERB’ trigger for price adjustment. Suffice to say at this rate we forecast a fuel price upward adjustment in the ERBs next review. A very interesting response to Zambian citizens is when the benefits of the Saudi Arabia ‘Aramco’ oil deal will trickle down as hinted by the Energy Ministry last year. A delegation from the Energy Ministry courted Saudi Arabia and pronouncements of low cost crude were made and that this would moderate the high pump prices of fuel. With a target of 6%-8% inflation, a rise in global crude pricing spells higher fuel prices with cost push effects that could result in the threats to single digit inflation the copper producer has enjoyed for over a year and half now. Upside risks to inflation are high with Saudi Arabia joining the OPEC agenda to cut supply that would offer support to crude prices above USD80/bbl. – USD100/bbl. The next fuel price review is expected in May.
Pump prices in Zambia are driven by international crude prices and the importation cost impact taking into account dollar Kwacha exchange rate as reviewed by the Energy Regulation Board.