Consumers should expect further drop in Oil Prices – Experts

Energy expert has estimated that consumers of petroleum products should expect the average price of diesel and patrol at the pump drop as low as GH¢3.50 per litre and GH¢4.00 per litre, if oil prices remain in the US$20 to 25 per barrel and US$30 to 35 per barrel ranges on the world market respectively.

“Ghanaian consumers should see the price at the pump drop”, Alex Mould, former CEO of NPA and GNPC has posited in a write-up he shared to our news desk, expatiating that, “I estimate that we could see the pump price go as low as GH¢3.50 per litre if oil prices remain in the US$20 to 25/bbl range and GH¢4.00 per litre if prices rise to US$30-35 range. However, all this is dependent on whether or not our cedi remains stable in the current FX range of GH¢5.5 to 5.8 per US Dollar.”

These will be dependent on the relative strength of the local currency (Ghana Cedi) comparative to the current foreign exchange rate range of GH¢5.5 to 5.8 to a US$1.0. Data from the Foreign Exchange market shows the cedi depreciated by 0.72% against the U.S. dollar, trading at an average price of GHS5.63 to the U.S. dollar over the period under review; from a previous rate of GHS5.59 recorded in the second pricing-window of March 2020. The Institute for Energy Security has, however, forecasted pump prices to remain largely unchanged for the second pricing window beginning 16 April 2020.

“Taking into consideration the relatively modest reduction in the prices of petrol and diesel on the international market, as well as the 2.29% marginal reduction in the price of International Benchmark – Brent Crude; the Institute for Energy Security (IES) foresees prices of fuel on the local market remaining largely stable”, IES predicted base on their trend and market behavior analysis in a statement it released last week. But noting that, “Competition between Oil Marketing Companies (OMCs) to control and gain more market shares may result in the selling price of fuel falling marginally within the second pricing-window of April 2020.”

From a consumer perspective, low oil prices on the international market should translate to lower fuel prices at the pumps, which then translate to reduced transportation costs, cascading to a reduction in the cost of goods and services and food.

The Good news is that, last week, the National Petroleum Authority (NPA) in a circular announced that, Ghana Oil Company (GOIL) had reduced its pump prices by 10 percent in the deregulated petroleum product pricing system. This was expected to force other oil marketing companies to also reduce their prices at the pump. This brought down pump prices from GH¢5.3 per litre in February to the current price of approximately GH¢4.3 per litre (April 2020), although lower than as expected by many energy experts and analysts.

The bad news though is that government with oil prices below US$30/bbl, will experience a drop in oil’s contribution to GDP and government revenues. This slow down on the economy will severely affect the government’s discretionary spending; and the impact will be felt on many of its infrastructure and capital expenditure projects e.g. roads. Which may in turn impact consumers’ costs, if not managed appropriately.

Ghana will likely to see a revenue drop from US$1.1 billion to less than US$600 million by the end of 2020. As a result, the net revenue to the Government of Ghana will be less than US$400 million after GNPC pays for its share of development and production costs.

This means the oil contribution to the country’s GDP will drop by US$2 billion this year and contribution to government revenue will also drop by nearly US$600 million (approximately 50%).

Mr Mould, in discussing the impact of the COVID-19 in the write-up proposed some solutions that can help mitigate the negative impact on Ghana’s economy as an importer and exporter of oil products.

He proposed that, hedging part of the country’s share of the oil production would have saved the nation some revenue in this disturbing moments and therefore urged the government to consider a risk management policy; such as hedging post-COVID-19 pandemic.

“Also we have seen a slowdown in G&G activities (Rig count is at it’s lowest in 10 years) with some development projects delayed and some oil service contracts rescheduled or postponed.

“This will have to force the government to seek opportunities for strategic cost-management measures and enact them such as; reduce its wage bill by rightsizing non-essential workers, as there has been a huge increase in the workforce especially in the parastatals and a large number of political appointees may have to be down-sized as well; and rationalizing all subsidies especially in the power sector.

“Also; as airports are shut to commercial airlines, special flight arrangements have to be made to keep our production FPSOs manned. Some major players have stopped short of citing Act of God or Force Majeure. Aker, for instance, has requested a postponement to deliver the final Plan of Development (PoD) and has even cancelled some of its long lead development contracts.

“We are bound to see a rising number of legal cases for compensation for these postponed or cancelled contracts”, he noted.

Source: Adnan Adams Mohammed