Last Year was a rollercoaster ride for the downstream petroleum market as the sector remained tight for the most part of the year, extending well into 2022. Although prices may likely remain below GHS7 per litre in the near term, unfolding market subtleties present a grim outlook for the market.
Before the start of 2022, almost all market analysts described the decline in prices of petroleum products among the big three Oil Marketing Companies (OMCs)— Shell, TotalEnergies, and GOIL as temporary as prices fell below GHS6.70.
Currently, TotalEnergies and Shell charge nothing below GHS6.80 per litre for petrol, with the exception of GOIL (GHS6.65), indicating that a deliberate policy strategy is urgently required to tackle the rise in fuel prices head-on.
Analysing the behaviour of the market and government policy responses in the last two months of the year, one thing is clear: the suspension of the Petroleum Stabilisation and Recovery Levy (PSRL) rarely had any impact or cushioned the market as prices continued to soar further, not long after taking effect.
While the government has moved to extend the suspension of the PSRL, this would only do little to cushion consumers. As such, the net effect of rising oil prices on the global market may place further strains on the market, as is currently seen.
Factors To push Fuel Prices Further
Ghana’s oil imports (including crude, gas, refined petroleum products) for the first 9 months of 2021 increased by 41.6%, indicating growing local demand. With domestic supply constraints likely to continue throughout the year, such high dependence on imported petroleum products will continue to prolong the sector’s woes.
Without a working oil refinery that could efficiently provide petroleum products to the market, these imports of oil products will further rise in the coming months. By all indications, the existing local refinery still faces challenges, suppressing its operations in the sector.
As the 2022 tax policies in the budget statement begin to kick-in, market agents (both producers and consumers) are likely to bear the brunt of a hike in input prices as charges on imported products inch higher than in the previous year, feeding into higher prices of petroleum products.
Inflationary pressures do not appear unwinding in the near term, as there are indications of further hikes in prices. Inflation for the month of November 2021, reached a record-high of 12.2 per cent, up from 11.0 per cent recorded in the month prior.
Overall, the cost of petroleum services are likely to remain elevated should market prices continue to trend upward.
To affirm this, the Center for Economics, Finance and Inequality Studies (CEFIS) said:
“The increasing rate of the monetary policy rates over the recent quarters does not predict a decrease in price levels. This coupled with the not too pleasant macroeconomic variables all points to the fact that inflation would largely continue to rally up in 2022 albeit at a slow rate.“
CEFIS Report
Meanwhile, this may likely cause a further depreciation of the cedi ending the year at GHS7.03 to the dollar, thus making imports of petroleum products expensive.
Inflation has been flagged among the highlights for 2022 in both emerging and developed markets. Already, the Central Banks of Brazil and Russia have increased policy rates while others still see their inflation rates as transitory, leaving rates unchanged.
In Africa, there are market hints of a rate hike in neighboring Nigeria, however there is high likelihood that for Ghana, the Bank of Ghana will keep the policy rate unchanged in its first MPC meeting of the year.
This notwithstanding, rising global oil prices reflects a good omen for the government’s treasury, as the government could enjoy another windfall gain this year. This means expected revenues from government’s oil exports and tax returns from upstream oil companies would climb higher for 2022.
Global Dynamics of Crude
Although still early in the year, oil prices have started off 2022 on a positive note, defying experts’ prediction of a ballooning surplus, instead hovering around $80 per barrel.
OPEC and its non-OPEC allies, known collectively as OPEC+, decided to raise its output target by 400,000 barrels per day from next month during its just-ended high-level meeting on Jan.4, 2022.
However, around 1 million bpd of production is currently offline because of disruptions in Ecuador, Libya and Nigeria. Thus, this expected rise in output may be constricted as demand continues to pick up momentum.
Furthermore, the unfavourable global dynamics including the growing unrest in Kazakhstan, the largest producer in the former Soviet Union which produces at around 1.6 million bpd presents complexities to the expected rise in output.
The unrest overshadows the tensions between Russia and Ukraine, as well as the Iran nuclear deal negotiations, all major oil producers in the cartel.
Global demand is showing recovery and expansion with mobility also recovering. In fact, OPEC is projecting that demand levels will return to pre-pandemic levels in 2022.
Of a truth, oil prices may trend higher reaching $90-$100 in the course of the year, as some analysts have posited.
Most likely, such a condition will place further constrains on the downstream petroleum market and the government should not be surprised if commuters experience a repeat of the 2021-styled sit down strike by transport service operators in the course of the year, in the case no action is taken to cushion consumers.
To better manage these sentiments, government must do well to take a relook at the taxes/levies on the price build up and in the long term ensure the country’s sole oil refinery is revived fully to assume its important role in the market.
READ ALSO: Gov’t To Borrow About GHS3.8 Billion Fresh Bonds in Q1 2022
