Oil Markets Sensitive to Disruptions

Namibian motorists breathed a sigh of relief when Minister of Mines and Energy, Isak Katali, at the end of last month announced that Namibian fuel pump prices for April would remain unchanged. Namibia is a net importer of refined petroleum products whose prices are directly affected by crude oil prices.

“Oil markets at the moment are sensitive to potential disruptions of the global oil supply balance in the environment of low surplus production capacity. March 2014 saw Brent crude oil prices rising slightly over the Russia-Ukraine crisis and supply disruptions in Nigeria and Libya,” explained Katali.

In Libya, oil production fell by about 80 000 barrels per day to a new level of 150 000 barrels a day, down from 230 000 barrels a day in February. This was as a result of a large oil field being shut down due to protests in that country.

Meanwhile, in Nigeria, Royal Dutch Shell declared a “force majeure” on crude exports due to a pipeline leak suspected to have been caused by oil theft. These events resulted in a shortage of crude supply in the market, thereby pushing up prices as demand soared.

In addition, the exchange rate between the Namibia Dollar against the US Dollar remained on a depreciating trend, partly caused by quantitative easing in the United States and some labour unrest in South Africa at the beginning of February.

According to Katali these factors threatened import prices in the local market and the oil industry was no exception from these aerse effects. Minister Katali added: “After the 20122013 dealer margin survey was completed, it emerged that profit margins of retail owners (service station owners) was low and needed to be adjusted.

It was for this reason that the ministry granted a 4 cl increase in the dealer margin. Moreover, when the ministry phased out LRP 93 petrol, a 6 cl increase in the service differential was granted to oil companies to help them clean their tanks and finance logistical activities that needed to be done for that purpose.”

Now that the phasing out has been successfully completed, Katali said the ministry is reducing the service differential by the same amount, 6 cl, which is effective as of yesterday, April 2, 2014.

Source : New Era