FALLING OF OIL PRICE

WORLD oil prices have fallen sharply over the past seven months, leading to significant revenue shortfalls in many energy-exporting nations. On the other hand, consumers in many oil importing countries, including Tanzania, are likely to have to pay less for the oil products they use as a matter of course.

Various reports show that, from the year 2010 until mid-2014, world oil prices had been fairly stable, at around US$110 a barrel. But since June last year, the prices have more than halved!

The price of Brent crude oil has now dipped below $50 a barrel for the first time since May 2009!  US crude has also fallen below $50 a barrel.

In the event, this has enabled the fall of fuel prices in Tanzania by around Tsh200 per litre.

The reasons for this change are twofold... One: weak demand in many countries due to insipid economic growth; and, two: surging US and OPEC oil production.

The fall of fuel prices in Tanzania has been received in a jubilant mood among Tanzanians. But, perhaps surprising enough, this will not translate into – for example – reduced passenger fares and other transportation costs, or reduced prices of basic goods and services.

Oil industry insiders have been quoted as saying that they think it will be a year or two until crude prices at the world market return to around US$80-$90 a barrel.  But, yet again, this doesn’t justify spending relief among consumers in Tanzania!

Motorists who spoke to Business Times said they feel a relief in their spending – but they are not sure whether this fuel price fall trend will continue well into the future! 

However, they believe that the reduced retail prices at the fuel pump  will help them to save some amount; but this will not create any major impact.

A motorcyclist-for-hire in the bustling Kariakoo area of Dar es Salaam said his daily fuel consumption is Tsh10,000, and this has fallen to Tsh8,000 per day, which translates to a saving of Tsh60,000 per month!

“But, it is illogical that the global fuel price fell by more than 50 per cent while the local market price fell by less than five per cent,” he grumbled to Business Times.

Although this is good news for consumers in Tanzania – as well as producers of goods and services – this should be looked at in the context of the fact that the country is heading towards an oil and gas economy.

The state-run Energy & Water Utilities Regulatory Authority (EWURA) cut the price of petrol in the commercial capital Dar es Salaam by 3.6 per cent, to Tsh1,955 (roughly US$1) per litre, and diesel by 3.3 per,cent to Tsh1,846.

EWURA also lowered the price of kerosene in the nation's commercial capital by 2.9 per cent, to Tsh1,833 per litre.

Wholesale prices for petrol were lowered by 3.8 per cent; diesel by 3.4 per cent, and kerosene by 3.0 per cent.

"The drop in retail and wholesale prices has been caused by a continued trend of falling world oil market prices," EWURA said in an official statement.

Economic analysts believe that the continued fall of oil price in the world market poses a risk in one way or another to Tanzania’s Government budget because fuel forms a relatively huge source of public revenues.

“The falling of fuel prices will have a major implication in the country’s revenue sourced from fuel imports – mainly during the last half of the 2014/15 financial year,” says one analyst.

But other analysts believe that the fall of oil prices in both the local and world markets will help to contain the inflation rate to some extent – mainly food inflation. This is if only because transport costs form  a major reason for high food prices, the highest weight of the Consumer Price Index!

Bank of Tanzania shows that Tanzania imported oil worth US$3,798.8 million during the year which ended on October 31, 2014. This means that Tanzania consumes about 1.54 million cubic metres of petroleum products annually.

Venture Capital reports that recent oil and gas finds across East Africa have positioned the region as a lucrative investment destination in Africa.

Research has shown that discoveries in the last few years are more than those of any other region in the world – and the boom is expected to continue for the next five years.

But, pessimists see this impressive position becoming less significant as the global oil prices continue to fall. A continued decline threatens the region’s economic prospect, they argue.

In any case, Tanzania is hopeful to lure investors in key economic  infrastructure to facilitate further exploration and eventual exploitation of its oil and natural gas. The country is already investing in infrastructure, including a 500+ kilometre natural gas pipeline from Mtwara to Dar es Salaam.

With oil-based economies struggling under the impact of the price fall, it is unlikely that prospective oil and gas producers – including Tanzania – will get any new investments in the meantime, as investors hold back to see where the oil market heads in the coming months.

The plunge in oil prices since June last year may hurt some crude exporters. But, it is overall a good thing for the world economy, the International Monetary Fund Managing Director, Christine Lagarde, has been quoted as saying in Washington DC.

“There will be winners and losers; but, on a net basis, it’s good news for the global economy,” she stressed.

Oil prices have fallen sharply since late June 2014, losing around 30 per cent as supplies increase and global demand for oil grows more slowly.

 As most sub-Saharan African countries – Tanzania included – are major oil importers, the global credit rating agency Fitch Ratings estimates that the plunge in oil prices could boost the region’s average growth to five per cent in 2015, up from 4.5 per cent last year.

Countries such as Kenya, Tanzania, Cote d'Ivoire, Seychelles and Ethiopia spend more than 20 per cent of their imports bill on oil purchases! Not surprisingly, portfolio investors targeting Africa are now focusing more on oil-importing countries – and looking away from oil-exporting countries!

 Bloomberg News reports that stocks have surged 22 per cent in Tanzania  since the oil prices began falling from a peak of $115.71 a barrel on June 19 last year.