Fuel prices for this month have been reduced by only N$1 per litre, to make sure the distributors and retailers also survive.

The prices for both petrol and diesel would have all gone below N$10, but distributors like all other sectors affected by Covid-19 are in dire need of a lifeline.

According to the Ministry of Mines and Energy, local demand for fuel has dropped significantly since the lockdown to curb the spread of Covid-19.

This has led to bulk fuel importers only selling a fraction of what they usually sell, and some retailers selling close to nothing.

Fuel prices were reduced by N$1 last week, with pump prices now at N$10,35 for petrol and N$11,13 for diesel for May.

The energy ministry has also increased the dealer margin for service station owners by 50 cents per litre for May, June and July and a 7 cents a litre industry margin.

“Subject to monthly reviews, this should help retailers get back on their feet,” said minister Tom Alweendo.

According to the latest Petroleum Activities Report, which determines the annual return on the investment of bulk oil importers, oil companies are currently recouping less than they should on their investments.

Globally, the transport economy has been massively disrupted, and in most economies has almost come to a standstill.

This has caused the global demand for oil to significantly drop, leading to a huge oil market. The consequence of this was that the excess supply pushed the price of oil around the world down.

Brent crude oil, which Namibia uses as a benchmark, also fell sharply, averaging between US$22 and US$29 for April.

Although the the oil price plunge was solid, it was also accompanied by a spike in the exchange rate between the Namibia dollar and the US dollar – which averaged at N$19 from N$16 at the beginning of April.

This led to somewhat of a set-off when matched to the fall in oil prices, although the impact of oil prices was larger than the depreciation of the Namibia dollar to the US dollar.

The net is that both petrol and diesel recorded huge over-recoveries at 202,078 cents per litre and 180,234 cents per litre, respectively.

Alweendo said like all other sectors of the economy, the local industry at both bulk and retail are negatively affected by the national lockdown, and it is only fair they are aided.

Analysts at Cirrus Capital said South Africa’s department of mineral resources and energy announced a drop of 174 cents a litre for petrol and 156 cents per litre for diesel.

No mention was made of any increase in margins or relief for companies in the industry or retailers, given the reduced demand over the past month, despite South Africa’s lockdown being significantly more restrictive than that of Namibia’s.

Given the larger price drop in South Africa, petrol will be N$1,17 per litre cheaper in Namibia whereas diesel will be 54 cents per litre cheaper in South Africa.

Last week president Hage Geingob announced the lockdown would be lifted from midnight yesterday, allowing some economic breathing space for almost 60% of the economy that was inactive during the lockdown period.

Estimates are that N$10 billion worth of gross domestic product was lost during the lockdown.

Fuel prices have been dropped by almost 20% since the beginning of this year, and Cirrus analysts said this will bring some relief to motorists and industries that use fuel as a significant input.

 

Source: Namibian

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