OPECs new price hawk, Saudi Ara­bia wants Oil closer to USD100/bbl. What it could mean for Zam­bia

Zambian Business Times - - FRONT PAGE -

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.

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