World Oil prices hit by political decisions |23 May 2018

 • Seychelles react firmly but cannot escape increases at the pump

The whole world is witnessing some very nervous moments regarding the price of fuel products. There is increasing incredulity not to say much misunderstanding that animate the public in all countries. This feeling always unjustly overflows on anger on their governments or their importing institutions without realising that these are powerless in front of the stance adopted by some major powers and oil producing countries.

The recent examples of the foreign policy of the USA have driven the entire oil market wild, spurring a wave of increases in all importing countries. The producing countries like the OPEC cartel and Russia are worsening the situation to promote their self-interests by lowering production in order to reap maximum profits despite a threat to disrupt the economies of all importing countries. This is the situation we are living in today in Seychelles and elsewhere in the world.

“The US president’s decision to unilaterally exit the nuclear deal with Iran caused markets to increase their prices,” says Sarah Romain, Seypec General Manager for Commercial.

“Iran produces more than 2 million barrels a day, that is, 4% of global oil supplies, and potential sanctions against Iran means that less oil is available on the global market and this instantly hikes up the price. To add more anxiety and disruption to the market, the provocative decision to transfer the US embassy to Jerusalem has triggered yet another explosive situation which has further impacted on oil prices. The ongoing escalation of tensions between Saudi Arabia and Iran, continuing conflicts in Iraq, Libya, Syria and Yemen have also significantly taken their toll on the region,” Mrs Romain adds.

On the other side, as stated several times in our energy review, major oil-producing countries, led by Saudi Arabia and Russia, have made their mark by reducing production since last year. Together, OPEC countries and Russia which produce more than 40% of the world’s oil, are succeeding in keeping supply low to raise prices. To complete the bleak picture, in Venezuela, the political and economic crises affecting the oil-rich South American country have resulted in its crude production going into freefall. All of these factors are contributing to a potential reduction in the global oil supplies, which consequently drive prices up.

“It is with this gloomy background that importing countries like Seychelles have to strive and manage prices as best they can,” says Mrs Romain.

“In Mauritius, fuel prices have massively increased by 10% since last week up to R21.36/litre (MUR 52.00), which is R1.84 higher per litre than in Seychelles. With prices highest these days since December 2014, Brent has climbed up to over USD 80 a barrel and is set to be nearer the USD 100 in the coming weeks if the same conditions prevail,” says Mrs Romain.

The import cost which is the price paid by Seychelles to the suppliers has gone past the R8.00 mark to reach R8.18/litre. This week the product cost increased 14 cents from R8.04/litre which was the product cost of the last cargo being used. This is what is causing the real increase passed on to consumers. There has been no increase whatsoever in the fixed charges locally, namely the taxes which is R8.59/litre and margin at R2.75/litre. The only increase which is applied is the one paid for the cost of the product.

The accompanying figure shows how the product cost has fluctuated since 2014, when Brent was well over USD 100/barrel. It moved from a high of R10.87/litre to R4.40/litre in 2016 following the crash of the oil market and now is gradually rising, with the last cargo at R8.18/litre. Equally important to note is that the tax on fuel in Seychelles has risen by 59 cents in that same period.

The soaring prices are causing resentment in many parts of the world as any fuel price increase has a direct bearing on many commodities or services. But too often, the real reasons for the increase are ignored and anger is misdirected like in Seychelles.

“Some people use social media to voice out vociferous and unwarranted comments,” an Energy Analyst told Seychelles NATION. “There are even calls for protest. But this is totally irrelevant as Seychelles is one of the countries which manages its fuel import prices well. The proof is that despite our higher standard of living, our prices at the pump are the second lowest in the Indian Ocean region. Consumers must understand that they will be compelled to suffer from increases caused by international turmoil and that the only way to mitigate the situation is to start saving on consumption. This is the only way out until prices go down again. Even the dangerous calls for any kind of subsidy is a false solution as the money will have to come from public funds.

The challenge is ever so clear for the country in this time of energy crisis by a continued strict and responsible price management of the imports. But the fact remains that Seychelles is highly vulnerable to any changes in the price of the oil barrel on the market. Like all importing countries, the gusts always blow hard at the pump as soon as there are winds that hit the world geopolitical situation.