Global oil market characterized by ongoing geopolitical tensions - Deputy Minister

The global oil market currently is characterised by the ongoing geopolitical tensions, post-pandemic challenges, supply chain issues and rising inflation, resulting in price hikes, William Owuraku Aidoo, a Deputy Minister of Energy, said on Wednesday, June 15, 2022.

Mr Aidoo said this on the floor of parliament in his response to an urgent question by Richard Gyan-Mensah, the Member of Parliament (MP) for Gomoa West.

The MP wanted to know from the Minister of Energy the cause(s) of the incessant hikes in the prices of petroleum products on the domestic market and what immediate steps government had in place to mitigate the effects on the Ghanaian citizen.

Mr Aidoo said there had been recent reports of diesel shortages and severely depleted distillate fuel inventories across North America, Europe and Asia, and the rapid resumption of passenger aviation as quarantine restrictions were lifted was also worsening the shortage because jet fuel came from some part of the refining stock as diesel.

He said shortages were affecting gasoline as refineries adjust their equipment and attempt to boost output of distillate and jet fuel, cutting into their ability make gasoline.

“Sanctions and boycotts of petroleum exports from Russia, a major exporter of distillate, especially to Europe, are reducing availability even further and intensifying upward pressure on fuel prices,” the Deputy Minister said.

Mr Aidoo said under the current deregulated regime in Ghana, where the Government was not responsible for determining the prices of petroleum products, particularly for gasoline, gasoil, and Liquefied Petroleum Gas (LPG), rises in petroleum product prices on the global market and depreciation costs of the Ghana cedi against the United States dollar were passed on directly to the end-consumer.

On the domestic front, the oil importers had to compete for forex in the open market to import petroleum products, which they mostly got at very high rates, he said.

Mr Aidoo noted that since the exchange rate was a major component of the price of petroleum products in Ghana, its market behaviour also reflected the significant price hikes.

Touching on measures in place by the Government to mitigate the effects of the price surge, he mentioned reduction in margins, adding that effective April 1, it reduced margins in petroleum price build up by 15 Ghana Pesewas (GHp15) per litre for the following three months.

The Bulk Oil Storage and Transportation Company Limited (BOST) margin reduced by two pesewas per litre, while the unified petroleum pricing fund margin reduced by nine pesewas per litre.

Mr Aidoo said the fuel marking margin reduced by one pesewa per litre, whereas the primary distribution margin reduced by three pesewas per litre.

With regard to temporary foreign (FX) exchange cover for oil imports, Mr Aidoo said to help stabilise the prices of petroleum products, the Government instituted a FX cover for oil imports through the Bank of Ghana.

Upon implementation, that arrangement resulted in an immediate release of 190 million dollars through an FX auction to bulk import distribution and export companies to assist them in clearing their letter of credits at that time.

He noted that the FX cover was supposed to guarantee at least 50 per cent of forex demand required for product imports within the arrangement duration, thereby reducing the sector's exposure to market speculation.

Currently, the FX support from the Bank of Ghana is 30 per cent based on the available reserve.