Last week the Institute of Energy Security (IES) called for a further reduction in Oil prices to reflect prices in the international markets.
This call follows an announcement by some Oil Marketing Companies (OMCs) of reduction in fuel prices at the pumps, which cumulatively amounted to 2 per cent.
However, Oil prices have further dropped to its lowest reduction since 1991 owing to the “Crude war” brewing between Saudi Arabia and Russia.
Owing to this, the Chamber of Petroleum Consumers, COPEC, have also joined the fray in calling for further reduction in the ex-pump prices for consumers to reflect the sustained decline in the global crude oil prices.
According to COPEC, there ought to be a reduction of fuel prices between 10%-32% compared to the 2% offered to consumers over the past few weeks.
This is contained in a statement issue by COPEC.
In the said statement, COPEC said it expects the OMCs and the Bulk Oil Distribution Companies (BDCs) to do the needful to ensure that fuel consumers in Ghana enjoy the full benefit of the global oil price reduction.
“It is our expectation in the coming few days that the various Oil Marketing Companies and the BDCs will ensure the Ghanaian is given nothing but the full benefit of these sustained reductions in fuel prices on the international markets”, a portion of the statement read.
COPEC further insist that the relative stability of the cedi against the major trading currencies offers another bases for a drop in prices at the various pumps in the country.
“Coupled with the steady decline in international oil prices, also is the nominal appreciation of the local currency, the cedi, which has recorded an appreciation of over 5% from earlier depreciation figures of over 5.85/$ to currently trade at below 5.40/$ according to latest BOG figures,” it said.
“Crude war between Saudi Arabia and Russia
On Monday, March 9, 2020, Reuters report indicate that Oil prices have dropped to its lowest prices since 1991.
This, they say, is as a result of the “Crude war” ongoing between Saudi Arabia and Russia.
Saudi Arabia began a price war with Russia by reducing its selling prices and pledging to unleash its pent-up supply onto a market reeling from falling demand because of the coronavirus outbreak.
Prior to this huge reduction, crude prices was relatively stable.
With this latest reduction, prices are generally expected to go down significantly at the various pumps, to ease pressure on consumers.
Brent crude futures fell by as much as $14.25, or 31.5%, to $31.02 a barrel. That was the biggest percentage drop since January 17, 1991, at the start of the first Gulf War and the lowest since February 12, 2016. It was trading at $35.75 at 0114 GMT.
U.S. West Texas Intermediate (WTI) crude fell by as much as $11.28, or 27.4%, to $30 a barrel. That was also the biggest percentage drop since the first Gulf War in January 1991 and the lowest since February 22, 2016. It was trading at $32.61.
Saudi Arabia, the world’s biggest oil exporter, is attempting to punish Russia, the world’s second-largest producer, for balking on Friday at production cuts proposed by the Organization of the Petroleum Exporting Countries (OPEC).
OPEC and other producers supported the cuts to stabilize falling prices caused by the economic fallout from the coronavirus outbreak.
Saudi Arabia plans to boost crude output above 10 million barrels per day (bpd) in April after the current supply deal between OPEC and Russia, – known as OPEC+ – expires at the end of March, two sources told Reuters on Sunday.
Saudi Arabia, Russia, and other major producers last battled for market share like this between 2014 and 2016 to try to squeeze out production from the United States, now the world’s biggest oil producer, as flows from sale oil fields doubled the country’s output during the last decade.
“Saudi Arabia and Russia are entering into an oil price war that is likely to be limited and tactical,” Eurasia Group said in a note.
The impact of the “Crude war” has formed the basis for the COPEC demands.
Meanwhile, COPEC wants the country’s price stabilization and recovery levies scrapped, saying that its continuous existence is inimical to the consumer.
“The PSRL must be immediately scrapped from the Price Build Up and a more sustainable source of funding be instituted for premix in order that the whooping 16p/litre charge on fuel prices can be dropped permanently to ease the pressure on pump prices immediately forthwith”.
“We cannot continue to deceive the Ghanaian of a deregulated petroleum pricing environment which is somehow also micromanaged against the very people we expect to bear with when there are increases but someway somehow deny those same people any reductions when the indications point in that direction,” COPEC, stated.
Factors Affecting Fuel prices
The stability of the Cedi, global oil prices coupled with tax components and margins of OMCs constitute the price build-ups of a litre of fuel in Ghana.
In addition to this, certain global developments also contribute to the reduction of fuel price in the international market.
For instance, a global phenomenon such as the Coronavirus outbreak in China, has led to a drop in demand for crude.
Data from Bloomberg, Indicates that as at Wednesday afternoon, February 26, 2020, a barrel of crude sold at 49 dollars, 51 cents.
Again, the local currency continues to witness relative stability against the major trading currencies,
By the close of day on Wednesday, the Cedi recorded a year to date depreciation of 3%, per information from the inter-bank foreign exchange market.
Also, there are about seven tax components that also add up to influence the price of fuel in Ghana.
This includes the price stabilization levy which is triggered when prices drop on the global market.
Currently, this is pegged at 12 pesewas per litre of petrol and ten pesewas per litre of diesel.