With oil prices expected to rise in the coming months following the continued ban on Russian crude oil by the European Union, with additional sanctions taking effect on the 5th of December 2022, economists predict that diesel prices are still likely to increase given global shortages.
This comes as the Ministry of Mines and Energy today announced that that diesel prices will increase by N$1.98 cents per litre with petrol prices remaining unchanged.
The new fuel prices in Walvis Bay will thus become N$ 24.10 per litre for diesel, while petrol remains N$20.08 per litre for petrol. The diesel prices across the rest of the country will also be adjusted. These adjustments will become effective at 00h01 on 02nd November 2022.
Mines Ministry senior public relations officer, Andreas Simon said the latest hike in the price of diesel follows the recommendation and advice of the Ministry of Finance, that the road user charges and the MVA levy be reinstated back to 148 cents per litre and 50.3 cents per litre, respectively, on the 5th October 2022.
Subsequently, this has also placed additional pressure on the local fuel prices that are paid by consumers at the pumps.
‘’Therefore, after entering the above input factors into the fuel pricing model, the Ministry recorded a combination of a low over-recovery on petrol and a high under-recovery on diesel, namely an over-
recovery of 13 cents per litre on petrol and an under-recovery of about 260 cents per litre on diesel.
Furthermore, the exchange rate figures for the period of 01-21 October 2022 indicate that the NAD has depreciated against the USD at N$18.0870 per USD compared to N$17.5851 per USD at the end of September 2022. This currency depreciation contributes to fuel price under-recoveries and has an
ultimate negative effect in terms of the pockets of local fuel consumers,’’ he said.
Meanwhile, Simonis Storm economist, Theo Klein notes that global oil prices have increased for the
first time on a monthly basis since May 2022.
He said during October 2022, Brent crude increased by 7.2%, while the Rand depreciated by 2.1%,
this led to a 9.4% increase in the Rand oil price (Figure 2). Specifically, global oil prices increased from USD88.86 per barrel to USD 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,’’ Klein explained.
Additionally, he said, that with the Reserve Bank in South Africa expected to hike interest rates by another 75bps in November and if the Rand follows its long run pattern of strengthening in Q4 of each year, further over-recoveries are then expected 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 USD 90 per barrel in November,’’ he said.