Zimbabwe set to benefit from falling global oil prices

13 December 2014, Harare – Oil prices eased further to a new low this week with brent trading at US  $66,80 per barrel on Monday (the lowest levels in five years).

Oil prices are down more than 40% from their peak in June this year when prices reached US $115. Oil prices are unlikely to rise significantly following the Organisation of Petroleum Exporting Countries (Opec)’s decision to keep average supply levels unchanged. The sharp fall in oil prices will have a direct benefit to Zimbabwe given that over 20% of Zimbabwe’s aggregate imports are petroleum and petroleum products.

Oil prices dropFuel prices are therefore likely to decline by at least 10% in Zimbabwe. The cost of imported goods is expected to fall due to reduced transportation costs. It will be interesting to see if these costs savings will be passed onto the consumer.

In a report published last Friday, US multinational financial services corporation Morgan Stanley adjusted its forecasts for oil prices, saying oversupply would most likely peak next year with Opec deciding not to cut output.

“Without Opec intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015,” Morgan Stanley analyst Adam Longson told Reuters.

In a meeting November 27, the oil producers’ cartel announced it would not cut its output anytime soon, a move that aims at out-pricing the US domestic shale production according to many analysts. Morgan Stanley now expects prices to drop as low as US$43 a barrel in 2015, meaning the crude could lose a further US$20 in the coming months.

According to the Zimbabwe Energy Regulatory Authority (Zera), the prevailing fuel prices in the country are within the provisions allowed by the Statutory Instrument 80 of 2014, which provide the pricing slate and have been falling in tandem with the decline in the international prices of crude oil.

Zera says it does not set the price, but monitors the prices in the market to ensure that the cap is not exceeded. This means the authority does not control the price but only gives pricing guidelines.

According to Zera, Zimbabwe was not necessarily the highest and that there was a number of factors affecting the fuel price (See table above). In the UK, for example, prices of fuel have fallen over 20% in the last few months.

However, prices in Zimbabwe have remained the same over this period to the detriment of the consumer. Zera has commissioned a study on fuel prices with results expected in the next two weeks.

 Lower oil prices are likely to benefit Zimbabwe in the short-term given its dependence on oil imports. It is, however, a matter of deep concern that lower oil prices are reflective of disappointing global demand growth.


– Zimbabwe Independent

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