ZIMBABWEANS should brace for fuel hikes in the New Year triggered by Saudi Arabia’s announcement recently that it will reduce its production into the coming year.
This comes as Zimbabwe is already witnessing fuel shortages due to delays in international remittances caused by a growing cash crisis.
Saudi Arabia, with the second largest proven oil reserves in the world, has warned its customers it will cut production in January, a move that will disturb market equilibrium.
Saudi Arabia, according to the US Energy Information Administration, sells more than 60 % of its crude into Asia and is a founding member of the Organisation of Petroleum Exporting Countries (Opec) which now comprises 13 nations that have been described by economists as a typical cartel that colludes to thwart market competition.
Market sentiment is that Opec will follow suit while some non-Opec countries have already indicated they may reduce production too. The strategic significance of Saudi Arabia in the international oil industry matrix has sparked fears of fuel hikes across the globe.
According to figures obtained from Bloomberg, Saudi Arabia increased oil to an all-time high of nearly 10,7 million barrels a day in July before reducing it by 0,2 million barrels in.
This means that the price of fuel will increase in the coming year as production declines.
Already, South Africa’s Automobile Association (AA) has warned motorists to brace for fuel hikes.
“Saudi Arabia has indicated that its crude oil production cuts may go beyond those proposed in November,” the AA was quoted as saying on Wednesday. “There are also signals that non-Opec members may voluntarily decrease production, which has the potential to further bolster international petroleum prices.”
South Africa’s AA warned that the impact of production cuts was by no means factored into current oil prices.
“If the oil-producing countries adhere to the proposed production cuts, oil prices are likely to strengthen until demand and production move back into equilibrium,” the association was quoted as saying.
Fears of fuel price hikes are even greater in South Africa as the rand remains weak to the United States dollar.