Rising global brent crude prices have resulted in increasing fuel prices in Zimbabwe since June and there is no end in sight as the Organisation of the Petroleum Exporting Countries (OPEC+) presses on with production cuts.
The Zimbabwe Energy Regulatory Authority (ZERA) on September 5, announced an upward review of fuel prices with diesel prices increasing by US11c, hitting $US1,76 per litre while petrol blend increased by US4c to $US1,65.
Prior to the increases, the price of diesel was pegged at US$1,65 per litre while petrol blend was at US$1,61 a litre as of August 2023.
Crude oil is up 25 percent since June and the benchmark oil price is currently holding above the US$90 a barrel reached last week for the first time in 10 months following fresh Saudi and Russian crude output cuts.
On Tuesday crude oil prices rose to their highest level this year as the world’s second and third largest oil producers jointly agreed to cap output, a bad omen for gasoline prices as Zimbabweans were enjoying a lengthy reprieve from the historically high prices at the pump experienced last year.
Saudi Arabia and Russia are behind the price increase as they said they would extend their oil production cuts equivalent to a combined 1,3 million barrels a day through year end.
The duration of the cuts surprised market watchers, as did Saudi Arabia’s hint that it may make even deeper cuts in the coming months.
The surge is sending ripples through the world and the prospect of effects throughout manufacturing may spur inflationary pressures on the global economy.
Oil.com analysts expect brent crude oil prices to remain around $93 on average during the last quarter of 2023, up from the $88 forecast back in August.
They also expect a decline in oil production of about 500 000 barrels per day in the second half of 2023.
OPEC did not change its demand forecast in its recent Monthly Oil Market Report.
The cartel predicted a 2,25 billion barrels per day increase in 2024 as the demand for oil is expected to rise in the next year.
It also reported an 8,97 million barrels per day production in Saudi Arabia in August, as compared to 9,99 million in June.
Economists say much of the increase has been driven by a group of major oil-producing countries that have deliberately cut back on output to generate higher prices.
Dr Prosper Chitambara, an economist, said the resurgence of fuel prices was likely to lead to an “inflationary pulse” that washed through the economy.
“I believe surging fuel prices are igniting fresh inflation fears, as production cuts by the global oil cartel heap yet more pain on consumers globally and we live in a global village. And to say we will see a price reduction of fuel anytime soon, would be a complete lie.”
Economist, Tinevimbo Shava, said this could make it harder for the Reserve Bank of Zimbabwe to fight inflation, “Certainly petrol prices flow through to higher headline inflation,” he said.
Shava believes that is where the pain point for the Reserve Bank of Zimbabwe is going to be and a lot of the central banks.
Tsungirayi Manondo, a trucker said fuel adjustments for those in their industry without contractual protection could prove fatal.
“There are still many, many businesses out there in our industry that are really struggling with the cost of fuel,” Manondo said.
“It is their biggest cost and there’s just no way around it. If they cannot pass it on, then they are basically going out of business. If they can pass it on, it’s hammering the small business and it’s hammering the consumer.”
According to analyst, Tafara Mtutu, fuel is a very significant cost in terms of doing business.
“Almost everything produced in Zimbabwe has a fuel component as part of its costs and when that cost increases, depending on how intensive that business uses fuel, it means that there will be inflationary pressures on some of the products.
“Countries that produce oil control supply in response to the broader economic environment by managing the price of oil because if they let it slide, it will affect their economies. So if supply remains tight the net result is price increases for fuel,” Mtutu added.
He opines that, when oil prices increase obviously a ripple effect is felt in Zimbabwe as seen in the increase of fuel prices and local suppliers are also increasing their prices in response to what is happening on the global landscape.
“In the long term businesses might also experience higher operating costs due to the need to use generators for back-up power,” he said.
Confederation of Zimbabwe Industries (CZI) President, Kurai Matsheza, also said the price hike will have an inflationary effect in the country driven by the expected increase in cost of doing business.
“As we know, oil prices are determined globally and a slight increase in its cost will also increase fuel prices in Zimbabwe.
“Fuel prices affect all sectors in the economy so it is likely that the cost of production for most businesses will increase especially for those who run generators during power outages and this would lead to inflation,” said Matsheza.
“Unfortunately we do not produce oil, but going forward businesses might need to rely on green energy,” he added.