The sunny side of falling crude oil prices
THE announcement by the Federal Government to reduce the price of a litre of fuel from N97 to N87 was not unexpected as many countries around the world have taken advantage of the decline in crude oil prices to cut their pump prices.
The United States of America, which has within a very short period of time become one of the biggest crude oil producers in the world, was one of the countries to quickly adjust its pump prices.
For instance, the price for United States regular Premium Motor Spirit (PMS) has fallen to $2 per gallon, down by over $1.16 per gallon from its 2014 peak in late April and the lowest price since October 2009.
Economists have predicted that low gas prices would likely continue through 2015 and save consumers billions of dollars throughout the year. The chief economist at Mesirow Financial last week predicted savings of $300 billion throughout the U.S. economy; an analyst for U.S. Bank’s Private Client Reserve recently forecast about $100 billion in savings.
With the U.S. Energy Administration predicting in December the average household will save $550 over the course of the year.
Also, the average price of petrol in the United Kingdom has dropped to around £1.10 a litre – the lowest level since January 2010.
Energy suppliers in the UK are set to slash prices by the end of the month with gas bills eventually likely to fall by up to seven per cent as drops in the price of wholesale energy are passed on to consumers.
Besides, Pilipinas Shell Petroleum Corp., Petron Corp., PTT Philippines Corp., Phoenix Petroleum Philippines, Inc., SEAOIL Philippines, Inc. and PTT Philippines Corp. reduced the prices of petroleum products starting Monday morning. A litre of fuel in the Philippine goes for $1.00
The price cuts continue to reflect the declining oil prices in the world market, which benefits the Philippines as it imports most of its fuel needs from other countries.
Indian government last week Friday slashed retail prices of petrol and diesel by Rs 2.42 and Rs 2.25 a litre respectively for consumers.
Petrol prices are at a four-year low in Australia and are predicted to fall further due to Saudi Arabia’s decision not to cut oil production, despite weakening global demand.
The fuel pump price in Venezuela as at January 12, was $0.02 per litre; Syria, $0.05; Saudi Arabia, $0.16; Kuwait, $0.24; Iran and $0.26 per litre.
The single largest entity impacting the world’s oil supplies is the Organization of the Petroleum Exporting Countries (OPEC), a consortium of 13 countries: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
Together, these 13 nations are responsible for 40 percent of the world’s oil production and hold the majority of the world’s oil reserves, according to the Energy Information Administration (EIA). When OPEC wants to raise the price of crude oil, it simply reduces production. This causes gasoline prices to jump because of the short supply, but also because of the possibility of future reductions. When oil production dips, gas companies get nervous. The mere threat of oil reductions can raise gas prices.
In April 2001, OPEC decided to reduce its collective production by one million barrels per day. This was at the same time that American consumers saw gas prices rise, hitting an average high of $1.71 per gallon on May 14, 2001.
OPEC increased its production in June 2005, when it raised to 28 million barrels per day with an increase of 500,000 barrels per day pending changes in oil prices. In September 2005, it made all of its member countries’ “spare output” available, an estimated 2 million barrels per day. However, in November 2006, OPEC again reduced its rate of production by 1.7 million barrels per day to keep the price from falling below $50 per barrel. OPEC’s production for the second quarter of 2008 was an average of 36.87 million barrels per day.
Nigeria is Africa’s top oil producer and relies on oil exports for over 95 per cent of its foreign exchange income and 70 per cent of government revenue, according to the International Monetary Fund. Global oil prices have slumped by more than 50 per cent since last June and this is having a negative impact on Nigeria’s ability to raise enough revenue for its services, according to officials.
The government had based its 2015 budget estimates on an oil benchmark of $78 per barrel, but was forced to revise the figure downward twice to $65 per barrel last month in the estimates submitted to the National Assembly. Oil prices are now down to just above $40 per barrel.
The sharp fall in oil prices has also led to a big devaluation of its national currency, the naira now exchanging at over 180 to the U.S. dollar from the Central Bank of Nigeria band of N165 naira to the dollar.
The last major change in the price of gasoline in Nigeria was on Jan. 1, 2012, when the PPPRA raised the price of gasoline by more than 100% after it announced the start of the removal of fuel subsidies. It raised the price of gasoline to N141 per liter from N65 per liter.