- If crude price bears persist, importing nations could benefit through easing pump prices in the interim
- Oil is on a roller coaster with global growth weakness and supply economics weighing the commodity
With a recent price hike effected by the Energy Regulatory Board, Zambia’s inflation has ticked up over 400bps to 8.3%. Current levels are in breach of the 6-8% BOZ targeted band. Being a net importer, the copper producer was adversely impacted by rising brent prices (at $76bbl.) and a weakening local currency. This resulted in a 16.8% – 21% pump price adjustment from gasoline to kerosene last month.
However crude has been on a roller coaster driven by both supply and demand factors. With concerns around softer growth from the worlds second largest economy, China, demand for crude is expected to wane. On the other hand the United States has ramped production to record highs adding significant rigs to 886 YTD that has added suppression pressure to WTI NYMEX futures to $62.6bbl as ICE Brent futures trails to $71.39bbl (as at 07.32 am: 12 Nov). Saudi Arabia on Friday 09 Nov. stepped in to commit to cutting production to 500,000 bbls daily for Dec. to provide support to crude pricing. Other factors weighing oil are the autopsy of the US mid term elections and the US Fed monetary policy stance that still hints more hikes starting next month. This has strengthened the dollar index to 97 thereby, by parity weakening commodity prices. (a stronger dollar is a safer haven asset reducing appetite for riskier assets such as copper, gold and oil).
$100bbl oil remains a mirage as Chinese growth process outweigh supply concerns making further easing very likely. This will ease Zambia’s import costs provided its local currency remains fairly stable. Fuel price reviews are carried out every 2-months by the energy regulator and should the international crude bears persist, the copper producers inflation trajectory could benefit some easing through possible pump price downward adjustment. However it must be borne in mind that other upside risks to inflation exist especially from the food side given the prolonged dry spell foretasted by the agri and meteorological division of the SADC.
“Oil price bears could be a short window of opportunity for Zambia to maximize her growth potential from lower production costs which could act a stimulus. Zambia’s PMI for the last 3 months have been very weak with values below 50 signalling decline in private sector activity attributed to high production costs as a consequence of high fuel cost and input inflation,” The Business Telegraph said in a note.
Zambia’s inflation printed 8.3% after the CSO priced in effects of the October pump price hike and the effects of the kwacha slide for the previous month.
