Jubilant crowds in Tripoli were met by speculation over oil prices. When the rebels swept into the heart of Libyan city, oil prices began to tumble over speculation and expectation that once the rebels have taken over, oil supply from Libya will increase substantially from its low since the revolution.
On Monday as battle raged in Tripoli, Brent crude dropped $3.47 to $105.15 a barrel, a fall of 3 percent, and is now trading at $107.35, while US crude fell by a dollar before recovering by the same amount to $87.37 a barrel. Lybia could be pumping as much as 1m barrels a day within months, close to the pre-war figure of 1.6m, nearly 2 percent of global supply. The prospects of oil prices going down in the short term is not on assumption that Libyan production will go back to pre-revolution immediately, but rather that the political situation would stabilise, reducing risk associated with production and exporting oil.
Post revolution it appears that it will take a while for Libya to be back on its feet- both politically and economically. However, one can only hope that the oil wells have not been sabotaged or tempered with. While we could all, oil users, get excited over the prospects of oil prices going down due to the potential end of the revolution, we must remember that there are a lot of factors that influence oil prices; Financial markets, demand by major markets (OECD) and global inventories just to mention a few. Just to illustrate, Global oil inventories balance supply and demand; If market makers notice an inventory build, spot oil prices will likely drop in response to balance demand with supply. Conversely, if oil futures rise in relation to the current spot price for oil, the impetus to store oil will increase.
During the month of August, international oil prices dropped; WTI oil declined by 10.88 percent; Brent oil fell by only 4.86 percent. So does this mean the rise in fuel prices in Botswana was unexpected, a hoax, a rip-off, like I have heard many people say? Not at all, in actual fact, we should have seen a higher increase earlier this year when we only got a 10 thebe increase/litter. The thing is our prices are decided about a month before they are announced and at the time when a decision was made, oil prices were going up and we needed to catch up. I know I will most probably get ugly stares for having made that statement but we have some of the lowest fuel prices in the region, look at our neighbours; South Africa is trading at around R10 per litre and we are still P7.70/litter (around$1.15). In Botswana retail fuel prices are regulated by the government, The National Petroleum Fund cushions and stabilises national prices when international prices are erratic. This means that sometimes, when international oil prices are too high, the government through the NPF will pay a share of the fuel prices for the consumers and sometimes when oil prices go down, the excess between real oil prices and what we pay is a contribution to the NPF. If oil prices continue to go down, we will as Batswana enjoy those benefits as well.
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