Oil prices rally to three-month highs |09 June 2020

● Opec supply cuts deal pushes global prices of crude oil up

The price of crude oil is slowly creeping back up, gaining momentum from a low of US $19.33 per barrel in mid-April hovering above US $40 at the beginning of June.

Brent has doubled since the Organisation of the Petroleum Exporting Countries (OPEC), Russia and other allies – collectively known as OPEC+ have agreed to cut supply by 9.7 million barrels per day during May and June to push up prices that collapsed due to the coronavirus crisis. Energy analysts are anticipating that crude producers led by Saudi Arabia and Russia will extend supply curbs after July in response to the energy industry’s crisis, a move that will rebalance the market. Even reticent producing countries like Nigeria and Iraq have agreed to cuts as prices begin to recover with coronavirus lockdowns easing.

The gradual reopening of businesses in a growing number of countries around the world after restrictions caused by the coronavirus pandemic are now starting up economies and equally boosting oil prices. Oil rose above the US $40 mark to reach under US $43 a barrel for the first time in almost three months on learning that OPEC+ producers have agreed on a short extension of their historic deal to cut output.Analysts predict a gradual increase of oil prices during the coming months leading to US $75 per barrel by the end of 2020.

The Seychelles trend

In Seychelles, price tags of motor gasoline at the pump have been reducing since the beginning of March to reach its lowest at R14.96/litre in the last week of May 2020. While prices increased on April 24, mainly as a result of the devaluation of the Seychelles rupee, the effects of a much lower priced cargo caused a R1.51/litre decrease at the pumps by end of May, which could have been much lower had the exchange rate of the US $ been at R14.22.

In fact the price at the pump would have been R14.24 had the Seychelles rupee not weakened from R14.30 to R17.82 at the time. In fact both gasoil and motor gasoline are below R15.00/litre which is the lowest the prices have been for a long time.

“We made a good call on buying a larger stock when prices had fallen in April which has been passed on to our consumers at the pumps,” explains Seypec’s general manager for commercial Sarah Romain. “Moreover, we have a well-structured purchase plan for our cargo, and managed to secure the best commercial deal allowing us to be able to offer the best possible rates.”

However, the unprecedented period of sharp fall in the prices of oil on the world markets these past months is seemingly and unfortunately coming to an end as global crude prices increase which will see the prices slowly creep up at the pumps in the coming weeks, which is a total reflection of what is drawing out on the international oil market. Seypec is also hoping that the exchange rate will not increase further as this will also affect the landed cost of the product impacting the effects of the pump price.

As the relief of a global economic recovery is starting to revive all activities, it is also evident that the demand for fuel will gradually rise together with the prices. Motorists and other users will have to bear with that economic reality and operate according to market rules. As global lockdown restrictions to halt the spread of COVID-19 are being eased, oil demand is expected to exceed supply sometime in July and the months ahead.

Press release from Seypec