The energy regulator in Africa’s second largest red metal producer announced a 6.0% ebb on petroleum prices ruling for the month of January 2022. This according to a press release from the Energy Regulation Board (ERB) dated January 31 citing Brent crude and Kwacha bulls ruling in December 2021. This announcement comes in the wake of a price review adjustment on frequency to monthly by the regulator in the quest to reflect ruling market prices of oil on the international markets and exchange rate fluctuations (rallies and slides). The press release attributed the price sag to an average 10.0% in oil prices to $85.25 from $96.39 a barrel as the Kwacha appreciated in the period. Petrol prices will now fetch trade K1.32 lower to K19.84 a liter while diesel eased K1.22 to K18.93 a liter. The copper currency rallied 6.05% in the last month of the year 2021 to 16.68 for a unit or dollar.
READ ALSO: Zambia Reshuffles Fiscal Purse In Subsidy Cut, Sends Petroleum Prices 25% Higher
Exactly a month ago, the Southern African nation scaled its fuel prices 25.0% in December of 2021, the first hike since 26 December of 2019 after the authorities scrapped off fuel subsidies as the MinFin sought to reorganize its fiscal purse to effect more optimal national production possibilities. The monthly adjustment will allow for the energy regulator to reflect market reflective prices which will allow for a reflective transmission mechanism to business entities of swings in underlying prices of crude and currency whose process was distorted for years on the back of methodologies and pandemic induced constrained environments and the subsidy cushion that has since been lifted.
Being a key input in manufacturing productivity and transportation, fuel prices remain topical in Zambia as they directly correlate with manufacturing activity pulse as measured by the gauge the Markit Economics Purchasing Managers Index (PMI) and above all Consumer Price Index (CPI) for inflation. It is about a dry point of construction that the fuel subsidy was an action ahead of the IMF Extended Credit Facility (ECF) requiring the Zambian authorities to demonstrate effective and optimal use of fiscal resources in a resource constrained environment.
UPSIDES RISKS TO OIL PRICES POINT TO GEOPOLITICAL TENSION AND FALLING COVID CASES
The current geopolitical climate around Russia and Ukraine causing nervousness for the OPEC+ states and strong demand from economies reopening as COVID cases subside globally, is likely to push Brent prices further higher in the $90’s. This coupled with a Kwacha depreciation as markets remain nervous on the need for clarity around debt restructure, could signal fuel price bears in the next coming months which could breed cost push inflationary effects. Ice Brent is currently flirting with highs of $91.2 a barrel while the copper currency is trading slightly north of K18 for unit of dollar. Fuel price hikes in the next month are likely should the ERB factor in the underlying variable volatilities.
The Kwacha Arbitrageur
