16 May 2018
- This press statement seeks to explain the current fuel situation in the country and highlight the measures being taken by the Government to ensure adequate and continued supply of fuel. The Government wishes to assure the nation that the situation is under control hence there is no need for the panic buying of fuel.
2.0 Causes of the current fuel situation:
2.1 International market forces
- The fuel supply situation in the country is a manifestation of market forces in the petroleum market at the international level.
- In 2017, OPEC members (Organisation of the Petroleum Exporting Countries) and non-OPEC countries led by Russia, agreed to cut the oil production output to clear the global glut of crude oil.
- The main reason for cutting production was to arrest the continued downfall of crude oil prices which was then on the downward trend with the lowest price of crude oil being US $43 per barrel in June 2017. Following the cut in production, the price of crude oil has been on an upward trend. From June 2017 to April 2018, brent crude oil prices have increased to US $74.75/barrel. This trend is expected to continue up to end of 2018.
- Furthermore, the international market predicts that the current impasse between USA and Iran may result in the potential disruption of crude oil supply across the globe. Iran being one of the largest producers of crude oil in the world, its reduction in output will further restrict the supply of crude oil at a global scale. The reduction in output may prompt an increase in the global crude oil prices and thus filter through to the Zimbabwean market.
2.2 Changes in FOB prices
- The Government has noted the increase of fuel prices in the past weeks which have been necessitated by the movement in global crude oil prices. The FOB prices follow the same pattern as that of the crude oil prices, noting that there is a one month lag. This has seen the price of petroleum products increasing in the last month in tandem with the crude oil prices.
- Zimbabwe as a price taker, has experienced fuel price fluctuations similar to the pattern shown by international FOB prices. The only difference emanates from the initial drop in prices in January 2018, which was a result of a reduction in the duties charged on petrol and diesel by the Government.
- A further drop in pump prices in April 2018 was as a result of the temporal reduction in the crude oil prices. Following the dip in prices in April, the prices of fuel have since taken an upward trend. These fluctuations in prices of fuel are cyclic in line with the nature of the oil market. These international price changes have affected the pump prices of fuel in the country.
- 2.3 Increased Fuel Demand
- The country has witnessed an increase in fuel consumption in the past three months. Petrol consumption has increased by 22% whilst diesel consumption has increased by 8 % in the first quarter of 2018 as compared to the same period in 2017. The increase in fuel consumption is as a result of an increased demand for fuel in the country. This could be attributed to an increase in economic activities in the country’s diverse productive sectors.
2.4 Foreign currency allocation for fuel procurement
- The Reserve Bank of Zimbabwe has been allocating foreign currency to oil companies for fuel importation at an average rate of US$10 million per week based on past fuel consumption trends. However, the forex allocations from RBZ have not increased to match the increase in consumption. This therefore means that the US$10 million allocated per week is now procuring less quantities of fuel than required, given the current demand.
2.5Impact of ethanol blending
- Ethanol blending reduces the amount of petrol imported into the country thus reducing the import bill. Depending on the blending level, the country therefore substitutes imports with locally produced ethanol by up to 20%. Based on the blending ratio applicable from time to time, the country therefore imports less petrol by the equivalent volume of ethanol.
- The ethanol blending ratio in the country has been fluctuating according to the availability of ethanol on the local market. The maximum allowable blending ratio at law is up to E20 (20% ethanol and 80% petrol), however, the country is currently not blending petrol with ethanol. This is due to the unavailability of the ethanol for blending purposes.
- The second impact of ethanol blending is the reduction in maximum pump prices of petrol depending on the blending ratio. Ethanol reduces the impact of the price increases by between 2 cents to 5cents per litre depending on the blending ratio applicable and the supplier of ethanol. The ethanol supply situation is expected to improve soon thereby resulting in the country realizing the full benefits of blending on fuel prices.
3.0 Measures being taken to Address Challenges
- The above mentioned causes are contributing to the current fuel supply situation in the country. Consumers should not panic as the Government has strategic stock meant to cushion the nation in the event of supply challenges.
- Furthermore, the international fuel traders continue to pump fuel into the inland bonded storage to ensure continued security of fuel supply in the country. As at 14 May 2018, the third party stocks in bond in the country are adequate for the next 25 days for diesel and 14 days for petrol. This fuel belongs to international fuel traders. Local oil companies can only access this fuel upon payment for it in foreign currency.
- The demand and supply situation is being attended to and will be normalized once the foreign currency allocation has been increased to meet the increase in demand.The Reserve Bank of Zimbabwe is working on reviewing the weekly allocation to oil companies for the importation of fuel given the increase in demand for fuel in the country.
- In addition, ethanol production is expected to resume by the end of this month resulting in resumption of petrol blending thus leading to a reduction in the import bill due to import substitution with the locally produced ethanol.
- The Zimbabwe Energy Regulatory Authority (ZERA) will continue to monitor the market to ensure compliance to regulated prices by the oil companies.
- I want to assure the nation that there will be adequate fuel supplies throughout the country.
- The Government urges consumers not to panic buy and horde petroleum products which may result in artificial shortages.
Hon. S.K. Moyo (Senator)
MINISTER OF ENERGY AND POWER DEVELOPMENT