An energy expert, Dr Yussif Sulemana, has revealed that the increase in global oil prices may not have major impact at the pumps in the country so long as the exchange rate doesn’t plummet.

According to him, the announced surprise cut in oil output by OPEC+ oil producers is “unfortunate” and if it is sustained there’s bound to be a bit of “heat” at the pumps. However, he explained that the dynamics have changed as three things will actually account for what the consumer pays.

Dr Sulemana explained that the exchange rates dynamics, crude oil price and taxes come to play in influencing the price of fuel at the pumps. He noted that with the “taxes constant”, the exchange rate has been phenomenal, as there hasn’t been “major increment”.

“If anything, we could potentially have appreciation in the exchange rate in terms of the cedi to dollar parity… So, if the exchange rate actually sustains this momentum and it doesn’t drop, then this increase in the global front may not have that significant rise at the pumps. But what it will definitely do is the quantum reduction that we were expecting at the pumps at this moment in time it will reduce. If it is not sustained at where it is, it will definitely reduce [but] the reduction will not be that massive like we have been expecting it.”
Dr Yussif Sulemana

Oil prices last month fell towards $70 a barrel, the lowest in 15 months, on concern that a global banking crisis would hit demand. Reacting to this, Dr Sulemana stated that he had projected that after the banking crisis the oil prices would hit a single digit. Unfortunately, he explained that the confidence has returned to the market and the oil has started to recover – which has resulted in the “surprise” increase in oil.

“So, yes, we will have some bit of impact at the pump but it’s not going to be as drastic as the previous impact we’ve had because of the stability of the currency.”
Dr Yussif Sulemana

Impact of gold for oil on fuel prices

Commenting on whether the debate on the drop in fuel prices being attributed to the gold for oil policy in the country can finally be ascertained when the global oil price increase kicks in, Dr Sulemana stated that if the gold for oil will have impact on the exchange rate, at this moment, it is difficult to tell because a lot of parameters are coming in to cause the exchange rate to be stable. However, he noted that the gold for oil policy cannot be ruled out.

The energy expert noted that it could also be part because the pressure from the dollar would have been minimized and because some of these factors are aggregated, it is difficult to see which one is having the massive impact and to what percentage.

“When it dropped you noticed there was a lot of confusion as to what was accounting for this drop, whether it was gold for oil or not. So, indeed, as much as this is not a good one, it brings a lot of clarity. If oil sustains within the 80’s it brings a lot of clarity that whatever is causing the price drop, then nobody will have any argument or any doubt with respect to what is causing the drop…”
Dr Yussif Sulemana

Elaborating on the decision by OPEC to increase oil prices, Dr Sulemana stated that the news came as a huge surprise to the market, and nobody expected OPEC to take the step at this time. He explained that looking at the fundamentals, what should have urged OPEC to take that step is a weakening in demand.

“If you look at the demand side of the continuum, you realize that it’s still robust, the single international player that is key for the global oil demand is China, and if you remember, China has abandoned its zero policy on Covid. So, the expectation was that demand was supposed to have increased. So, all fundamentals were right – demands were still very strong and resilient but if you look at why OPEC did that, if you notice over last week, something happened on the international market that was just out of the blue – a bearish sentiment rained into the market where we had phenomenal collapse of some banks and that cascaded into a demand drop…”
Dr Yussif Sulemana