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Daily Briefing: Global oil price continues to rise. Fuel prices & “Ors” up

In the last two weeks, there has been a continued upward trend in petrol and diesel prices around Uganda. Going by the current trend, the price of petrol and diesel has gone up significantly, reaching levels even beyond those last seen in 2013 and 2014. The two major players in Uganda – Total and Shell – are quoting prices of between Shs3900 and Shs3800 for Petrol and Diesel is averaging between Shs3300 and Shs3200. This is a considerable rise of about Shs200 on a liter in two to three weeks.

Additionally, the other players in the market have also significantly increased prices. Normally, the price difference between the major players and other dealers would be about Shs200 to Shs300. However, today that difference may only be about Shs100.

In May 2016, fuel prices were averaging Shs3200 for Petrol and Shs2450 Diesel. At the time, the global price of oil was below the $50 per barrel mark.

What could be the reason?

Quietly, as the world pays attention to “shithole” comments, “touching and not touching the constitution” and other global problems, the global price of oil has continued to rise.

On Tuesday morning, Reuters noted that the global oil price was reaching a three year high due to increased demand. “…a level that has not been seen since 2014’s oil slump.”

When was the last time Uganda’s fuel price was this high? 2013/14.

According to infomine.com, between mid-June 2017 and January 15th, 2018, fuel prices have gone from $50 per barrel to $69.84 per barrel. Fuel prices are bound to follow an almost similar trend. Only that they went up like a rocket since December 2017. In fact, during the two Kenya presidential elections in August 2017 and October 2017, fuel prices were relatively stable with limited volatility.

There are other factors to why fuel prices could be rising. It could be the 3% depreciation in the Uganda Shilling in the last six months. Or it could be other issues regarding the loading of fuel in Kenya. However, for now, the global oil price is a significant factor. The fuel price is increased in anticipation that the purchase price of petroleum products in about 2 months will have gone up, so that cost needs to be recovered prior to the purchase.

In an interview with the Daily Monitor in 2015, a former Vivo Energy Managing Director noted that the base price (set by Platts going by the global crude oil price), contributes about 40% on the price per liter of fuel. So, there you have it. It is the global oil price. 

Others

Power tariffs in the first quarter of 2018 rose by 3.3%. One of the determinants of the tariff review every quarter is the global price of oil. The Electricity Regulatory Authority (ERA) has set the base price for international crude oil in 2018 at $60.74 per barrel – by end of March, the crude oil price may or not be above the $70 per barrel mark. In 2017, the base price used by ERA was $51.9 per barrel.

Oil production prospects in Uganda look good with the increasing oil price. Oil companies will now make their Final Investment Decision (FID) with the better oil prices in mind. The current oil price is considered to be above the break-even price for the Uganda project. That improves prospects for oil production and the pipeline. It could also breathe life into the oil refinery that has generated limited interest from investors.

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