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A filling station attendant refuels a motorist’s vehicle at a Dar es Salaam outlet. Tanzanian consumers wonder why they are experiencing no relief in buying a product whose price in the world market has fallen by 40 per cent. Ewura says prices might go down effective February. PHOTO | FILE
Dar es Salaam. When Tanzanians welcomed the New Year in 2014, a barrel of oil was trading at $100, which was equivalent to Sh165,000, according to the then prevailing exchange rate, or Sh174,000 at the current dollar rate.
Fast forward to 2015 and oil prices have fallen by 52 per cent, reaching a five-year low of $50 (Sh87,000) a barrel.
A barrel is a unit of volume for crude oil and petroleum products whereby one barrel equals 42 US gallons or 35 UK (imperial) gallons, or approximately 159 litres or 9,702 cubic inches (5.6 cubic feet).
Yesterday, Goldman Sachs, a global investment bank, predicted that by June, this year, a barrel of oil would have tumbled further to a record low of $45, which is equivalent to Sh78,300, according to the current exchange rate of Sh1,740 to the dollar.
According to a report by the respected newswire service Bloomberg, Goldman Sachs said US oil prices would fall to around $40 a barrel in the first half of this year, enough to curb shale investments as it gave up on Organization of the Petroleum Exporting Countries (Opec) cutting output to balance the market.
Earlier, there was push to force Opec to reduce the supply of oil in order to prevent a further freefall of prices, but the producers, especially from Arab countries, have declined to cut their daily output.
Global oil prices have fallen by more than a half during the past twelve months. With the latest forecast by Goldman Sachs, in June, this year, oil prices would have fallen by between 55 and 60 per cent—the lowest during the past decade.
Goldman reduced its six and 12-month West Texas Intermediate (WTI) predictions to $39 a barrel and $65, from $75 and $80, respectively, while its estimate for Brent for the period were cut to $43 and $70, from $85 and $90, according to the report.
Tanzania situation
Despite the record fall in global oil prices, Tanzanians consumers don’t have much to cheer because the tumbling prices are not reflected proportionately at the country’s fuel station.
Although the Energy and Water Utilities Regulatory Authority (Ewura) last week announced a reduction in fuel of roughly Sh80 per litre, the adjustments are nothing compared to what is happening in the global market.
According to data obtained by The Citizen, when oil was trading at $100 (Sh165,000) a barrel in January, last year, it cost importers Sh1,022.40 to import a litre of petrol. This price includes buying cost, insurance and freight charges. (Read The Business Week of Thursday, this week, to understand where your money goes in oil sector.)
Mathematically, if at the price of $100(Sh165,000) a barrel, it cost local oil importers Sh1,022.40 per litre in January last year, at the current price of $50(87,000), the same should cost Sh587.90—almost down by 50 per cent.
But with Ewura falling into the trap of the carefully planned tale of importers, local motorists are told the weak shilling against the dollar and heavy taxes on oil prevent them from enjoying the global oil bonanza.
The taxes and other levies consume about 40 per cent of the pump price in Tanzania, according to details seen by The Citizen.
If you take the current importation price of a litre of petrol, which is Sh578.90 (after the fall of price at the global market to $50 barrel by yesterday), it means the total cost before importers add their profit margin would be Sh815 per barrel.
For the consumers in Dar, where transport of oil to the selling point costs less compared to up country, a litre of fuel should be sold at roughly Sh1,200, according to analysis conducted by The Citizen.
But still, in Dar, the situation is more complicated, because even the formula used to arrive at the indicative prices by the regulator calls for more explanation or even a quick look.
Although there are more taxes and levies on oil, the consumer won’t understand that all these are pegged on the market price, meaning when price goes up, the taxman also earns more. This being the case, when prices falls in the global market, the taxes go down, and it should mean a relief to local consumers but apparently, not in Tanzania.
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