This has created a major blow to the oil exporting countries like Nigeria, Libya and Angola as well as the Middle East. Oil exporting countries have had to cut down on their production, thereby cutting down on employment.
During this period of job cuts, inventories are also reduced. According to Bloomberg, the original cuts in November were meant to send the market into backwardation, placing a premium on short-term supply and increasing OPEC revenues.
Analysts have suggested that cutting down production may support the price as it will reduce supply, thereby increasing demand, which ultimately raises the price of the product.
In the same vein, cutting down production will result in revenue cuts for OPEC members, and bigger struggles to balance stretched budget deficits they are already faced with.
For Zambia, a non-oil producing country, the low price on the international market could be a blessing for a stressed economy,whose citizens pay a high price accessing the commodity.
The Energy Regulation Board (ERB) recently announced it will review pump pricing based on the performance of international crude prices, with the other factor being the Kwacha’s stable performance against the dollar the last six months.
The presumption is that pump prices will reduce further next month when the next review is due. The stability of the Kwacha since its last huge drop can not be overemphasized, trading in the range of 9.55-9.85/USD.
Crude oil prices have been consistently declining with the last review conducted by ERB pegging a barrel at $55.
Today, international crude oil price regulators such as NYMEX and WTI are contracting trading prices between $48.08 and $51.03 per barrel.
All things being constant, the oil price fall curse for exporters is expected to be a blessing for Zambia.
A low oil price entails reduced production costs for fuel intensive industries and could ease transport costs too.
These factors will ultimately ease the cost of essential goods and cushion inflationary pressures to keep interest rates in check in Zambia. As of last month, the overall inflation rate was at 6.8 percent, while the food inflation rate was at 7.8 percent per Central Statistics assessment. The Consumer Price Index (CPI) was at 193.11 points.
Commodities such as mealie meal, bread and dairy products should have price cuts based on the activities in the oil industry.
Currently, the average price for a loaf of bread is K9, while a 25kg bag of mealie meal is pegged at K95. Cooking oil is selling for K35 for a 2.5 litre container. A bag of Dangote cement is going for K53 while Lafarge is at K54.
Commuters in the country will expect their fair share of the blessing. As of last month, the CPI for transportation was at 207.35. The bus fares for common routes were at K65 for Lusaka-Ndola, K85 for Lusaka- Kitwe, K120 for Lusaka-Livingstone and K150 for Lusaka-Solwezi.
Within Lusaka – the capital – bus fares were at K6 from town centre to Chelston, K7 from town centre to Avondale, K5 from Mtendere to Kalingalinga and K7 from town centre to Chawama.
In view of the competing factors, the benefits of low oil price should overrall benefit an ordinary citizen in an oil importing country like Zambia. There is no reason Zambians should continue paying the same, if not more, for essential commodities when oil prices have nosedived. It’s hoped the Zambian government will ensure the trickle down benefit of low oil prices reach its citizens in Shang’ombo, Ukwimi and Chavuma.