Crude prices recover after a season of impulsive fall

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Southern Times Writer

Harare - The week saw oil prices recovering after a series of a fall in the price.

On Tuesday, 1 October 2019, after US industry data announcement of a reduction in US crude inventories, counterbalancing weak economic evaluations, the oil price then rose banking on the postulation of reduced supply.

The first day of the month saw Brent crude adding 43 cents, or rising by 0.7percent, to $59.32 a barrel claiming back some of the ground lost in the previous weeks.

In the past, oil prices used to have an expectable trend. However, recent periods have noted that oil prices have become volatile due to unexpected cuts in supply of inventories. For example, global oil prices had fallen to USD$26.55 a barrel in  2016, of which in 2015 the price was USD$60 a barrel.

A year earlier in June 2014, the price averaged $100.26 a barrel. In 2018, brent crude hit a four-year high of USD$81.20 a barrel. Prices responded to OPEC's December 2018 decision to cut 1.2 million barrels per day from its October levels.

Members would cut 800,000 barrels per day and allies would cut 400,000 barrels per day.  Reports also showed that OPEC's goal is to return prices to $70 a barrel in  2019. Analysts are of the view that the major reasons for the volatility in oil prices include oil production changes, tensions in the Middle East, uncertainty over OPEC's supply, the fluctuating value of the dollar, and shifts in oil demand.

n determining the magnitude of oil shocks to the

economies of Southern Africa, it is essential that we

examine the various components of vulnerability, as

well as the crude oil price movements and the rela-

tionship between energy and development.

Because energy consumers and producers are con-

strained by their energy consuming appliances

which are fixed n the short-run, thus making it diffi-

cult to shift to less oil intensive means of production

in response to higher oil prices, oil price shocks

increase the total import bill for a country largely

because of the huge increase in the cost of oil and

petroleum products. Low-income countries and

poorer households tend to suffer the largest impact

from oil price rise.

The question that then remains is how this volatility affects Southern African economies? According to a research paper published by the Journal of Energy in Southern Africa titled The impact of higher oil prices on Southern African countries, most Southern African countries are completely dependent on imported oil as a primary energy source and are therefore highly vulnerable to oil price shocks.

The oil price increases have significant impacts on the economies level of real gross domes-tic product (GDP) and economic performance. The oil price increases reduce the national output, change the structure of spending and production and shifts the economy to a lower economic growth path.

This affects the rate of inflation and, at the same time, alters the structure of relative prices, and the economy’s import bills are strained, adding to the adverse shift in their terms of trade. The actual impact of oil changes varies markedly by country and depends on, at least, two factors: the degree to which they are net oil importers and the energy and oil intensities of their economies.

“In determining the magnitude of oil shocks to the economies of Southern Africa, it is essential that we examine the various components of vulnerability, as well as the crude oil price movements and the relationship between energy and development. Because energy consumers and producers are constrained by their energy consuming appliances which are fixed in the short-run, thus making it difficult to shift to less oil intensive means of production in response to higher oil prices, oil price shocks increase the total import bill for a country largely because of the huge increase in the cost of oil and petroleum products. Low-income countries and poorer households tend to suffer the largest impact from oil price rise,” said the report.

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