The oil price has been on a free fall in the past couple of months, hitting an historic low last Friday. For the first time in 12 years, oil prices tumbled below $30 as the fear for China’s economic slows down, the US dollar strength and steady oil reserves, disagreement among OPEC nations and the expected Iranian’s return into the global oil market has gripped the financial markets with fear, which has sent oil prices plummeting.
Oil has recorded more than a 70% price drop in one year; A significant drop from 2014, peak when prices reached $112 a barrel. There are all indications that prices could hit below $20 a barrel before the end of the first quarter of 2016. The drastic and sharp drop in oil prices currently rattling the financial markets, is a combination of many factors, among which China’s economic slow down and the US energy policy shift plays a significant role.
As the US moves towards energy self sufficiency; it has been boosting its crude stockpiles (reserves) and upping its domestic oil production. This move has left her traditional suppliers such as Venezuela, Nigeria, Iraq Saudi Arabia etc, in the cold with millions of barrels of crude oil without buyers.
China’s dismal economic news is contributing greatly in the current oil price slump. As recently as 2012, China was a red-hot economy, growing at 10%, with consumption of oil at 10.8 million barrels per day. However, today, its oil consumption has dropped by a whopping 397,000 barrels per day. A drop that has partly been driven by the economic slowdown or declining industrial productivity, with projection of 6.5% growth this year, the lowest in 25 years.
The United States dollar plays an essential role in the pricing of commodities such as gold and oil in the global markets. With the US economy steadily recovering from the 2008-2009 financial meltdown, the US dollar has equally been strengthening in value against most other currencies, and since oil is traded in US-dollars, the rising dollar has been reflected by a fall in value of oil relative to the US dollar.
Iran, which has the world’s fourth-largest oil reserves, is also expected to return, and is expected to pump an additional half-million barrels a day into international markets very soon- after the United States and other western powers lift sanctions against its oil exports, and this is likely to send oil prices diving deeper
The Vienna based oil cartel, OPEC, seems to be in disarray, as its members do not seem to agree on methodologies to control the oil output. While Nigeria, Angola and other hard-hit countries by the price drop are pressing for oil production cut, Saudi Arabia, Kuwait, Qatar and the UAE would not agree to reduce their production. And without a unanimous agreement, oil prices could only keep on falling
Oil-price collapse is rippling throughout the world. Russia, an oil-exporting country has been one of the first major casualties. With oil prices slumping and sanctions painfully biting the country over its actions in Ukraine, Its currency (rubble) value has fallen by 9.7% in the last ten months. Last week, Russia conceded to economic difficulties and announced a 10% budget cut in light of the falling oil prices.
Nigeria, one of Africa’s major oil producers is on a catastrophic economic edge, and could possibly see economic implosion and unrest; citizens taking to the streets in protest of economic hardship, following the massive budget shortfalls caused by the tumbling oil prices. Nigeria's 2015 budget passed when the price of oil was around $53 per barrel, while its 2016 budget was assumed when price of oil was above $38 per barrel last December.
In short, Nigeria is a troubled economy on the brink of a recession. Matters are expected to worsen if India, one of her largest customers decides to buy oil from her neighbor Iran, who has been re-admitted into the international oil trade following the lifting of economic sanctions on Iran by the United States.
One man’s loss many a times, not all the time, is another man’s gain. In contrast to the widespread fear and panic in oil exporting countries, oil-importing countries should be in celebratory moments by seizing the opportunity provided by oil-price drop.
Both Tanzania’s motorists and policy planners will benefit from the historically low oil prices. While Tanzania’s motorists will benefit at the pump by paying less for their gasoline, the country’s economic-policy planners should work on re-distribution of resources realized in the form of low oil prices to tame the inflation.
Both Tanzania’s motorists and policy planners will benefit from the historically low oil prices. While Tanzania’s motorists will benefit at the pump by paying less for their gasoline, the country’s economic-policy planners should work on re-distribution of resources realized in the form of low oil prices to tame the inflation.
Drop in energy prices, will enable importing countries (Tanzania inclusive) to reduce fuel subsidies, and thus, relieving the government of the heavy financial burden. Low oil price for that matter is more of a tax cut or stimulus incentive to the government of Tanzania. Savings realized from low oil prices should be spent on other critical projects to foster the country’s economic growth as well as taming the inflation.
The government of Tanzania could invest cash savings realized from low oil prices into alternative sources of energy, into education, healthcare or into geographic areas where infrastructure has been neglected or where manufacturing and jobs have dried up.
Mungu Ibariki Tanzania
John Mashaka
Mashaka.john@yahoo.com
Super sana. Ndugu John Mashaka, haujatutendea haki kabisa na pia kutuacha kama mayatima mashabiki wako katika globu ya. Jamii. Tulitegea ungekuwa bungeni kutetea hoja mbali mbali za maendeleo. Ndugu Mashaka, hii swala la mafuta ni jipu hapa Tanzania. Linabidi litumbuliwe, miaka nenda rudi, haliguswi mafuta hayashuki bei Licha ya kwamba soko limeporomoka. Kudos sana, kwa Zama za majipu. Tuwasiliane kesho mafuta yameshuka
ReplyDeleteKaribu sana John.mada zako siku zote uleta mijadala mizito sana. Nimekuona juzi Azam TV na uchambuzi mzito. Hongera sana kijana kwa kuivumisha Tanzania. Wasomi kama wewe wanatufanya kujivunia utanzania wetu. Proud of you
ReplyDeleteKwenye hii blog ukimsema vibaya John, unajitakia matusi mizito. Mimi sikubalini Na John kwamba mafuta itashuka zaidi kutokana na sababu alizozisema. John angetoa sababu zingine zinazoeleweka. Kwa maana soko huria linajiendesha. Hapana John, hapa sikubalini na wewe, hata nikitoka wa sitajali. Sorry
ReplyDeleteJohn Mashaka wa Wall-Street. You are part of the problem. Although najua una akili sana, akili kama mchanga wa bahari, ila naomba nipingane na wewe. Nyie ndio baadhi ya baniani walisababaisha bei ya mafuta kushuka. Nyie walafi mliolaaniwa nhuko WallStreet taamaa zenu, za kutaka hela zote duniani dio chanzo za migogoro ya kifedha
ReplyDeleteRais Magufuli inabidi aende Wall-Street akatungue majipu ya wakina John Mashaka. Hela wanazo nyingi sana lakini hawaridhiki. Jamaa anajaribu kutupumbaza ilia je agombee urais na yeye. Mashaka usijidanganye, urais hauwezi kupata hii nchi.
ReplyDeletewatumashaka john wanaweza kutumiwa vibaya na wanasiasa wakasaliti taaluma zao
One of the best, and most Brilliant Tanzanian analysts. Namuona kituo cha runinga cha CNBC. Good economic commentator
ReplyDeleteJamaa haandiki hizi vitu mwenyewe. Anasaidiwa na State Department ili kuwa brainwash Watanzania. Mashaka John inabidi atumie akili zake vizuri. Tunajua wewe ni genius, tumia akili zako vizuri
ReplyDeleteI refused oil is price up and economic warlds. So I say, price of tsh. 2000 @sheli is bad for economy. Mr. Mashaka is gets wrong to Tanzania tomorrow will not be cheap because of collupt at Ewura not good to Magufuli to pasua jipu. Thank verify. Much
ReplyDeleteKusema kweli jamaa tumemmiss sana. Karibu sana jukwaani Professor.
ReplyDeleteNajua na nimesikia kwa watu kwamba John ni mtu mzuri sana, na mnyenyekevu. Anajali sana wafanyakazi wake, ambao nasikia wote 12 ammewanunulia magari, ila nasema wazi, hata mkinitukana sitajali, I hate this guy. Seriously I hate him. Sababu kubwa sijui ni kwa nini namchukia but I hate him. Samahani ila huo ndio ukweli
ReplyDeleteNdugu yetu tumemshauri ahachane na watanzania. Anapoteza nguvu zake. Kwenye mafuta ndio Kuna dili, ufisadi wa kutisha. Who is to fall petrol price? In Tanzania is not possible to fall price
ReplyDeleteTrue, true, very true
ReplyDeleteIts certainly a bonanza for us, but let us not just dance and yippee in sunshine celebrating the abundance of this God sent manna. The price of oil may hit the ground and bounce back with a vengence.Then we will be on our knees in sack cloth and ashes.
ibrahim
Whilst oil prices have plummented about 70% as you stated, the same has not been reflected on the local market at all.
ReplyDeleteJohn,wengi hawatakubaliana na mimi,ila wewe ni shujaa wa hii nchi. Asante sana kutuelemisha.wanafunzi wako tuko wengi sana. Makala yako yanaandikwa kwa ufasaha mkubwa sana
ReplyDeleteBrother John, hao wazungu wametuibia kwa muda mrefu sana. Nadhani Ni muda na sisi tufaidike. Heee, walionje joto la jiwe na wao pia. Naomba Mungu mafuta ifike dola tano
ReplyDeleteHi John
ReplyDeleteThanks for the article, I enjoyed reading it and you did a good job not tomusel complex words and vocabularies. Perhaps, you should consider to write monthly in the Citizen on Sundays or in their Business pull out on thursdays as a guest columnist.
Best
Simai
Zanzibar
Professor Mashaka,
ReplyDeleteAs Wall Street debates who will cut production, with many eyeing the Saudis since OPEC's last meeting, Croft insisted that the Saudis are preparing for lower prices for longer.
"The Saudis have just announced an austerity budget," she said. "They're pulling back subsidies; they're talking about big privatizations."
She added that while there were speculations that OPEC was going to have an emergency meeting, the cartel is waiting for information that is not in yet.
"I was at the December meeting and they said 'we can't cut now, we don't know what Russian production is going to look like, we don't know about the U.S. and we don't know the Iranian numbers,'" she said. I can't agree with you more. Thumbs up
indicate sources of the data you use in your writing...otherwise you may be using unreliable/questionable statistics to base your arguments and then end up with wrong conclusions!!
ReplyDeleteJohn Tanzania does not subsidise oil import as is the case e.g. Nigeria. Its a free market flow here. So no savings on the part of the Govt. as you thought rather Govt will miss road toll tax collection
ReplyDeleteWhich is pegged on retail oil price since these will be lower. What the Govt can do is probably is to establish stabilisation fund to create a buffer against future higher fuel prices. ALEX BURA DAR
I am not sure if the Government is longer subsidises on oil importation..as matter of fact the government will benefit the same as its citizens on the gasoline pumps on a lower prices tags for its heavy engine vehicles.
ReplyDeleteHabari yako ipo vizuri na nakubaliana nawe ,ila bei ya mafuta ya kipindi cha baridi(winter) ni rahisi kulinganisha na bei za mafuta yanayotumika kipindi cha joto (summer). Hivyo kwa Tanzania haitashuka sana kama Ulaya na USA kwa sababu:
ReplyDelete1.Tabia ya viongozi wetu katika kutowatetea watumiaji(wananchi) kulingana na soko dunia.
2.Tamaa za wafanyabiashara wa mafuta kutoendana na soko la dunia.
2.Tanzania ni joto mda wote mafuta yake bado ni ghali kidogo kuyatengeza kulinganisha na Ulaya na USA kwa sasa ambako ni baridi.
Ni maoni yangu tu.
John is a very polarizing figure. I don't understand why people get so much charged and get distracted from the key issue
ReplyDeleteOne after another praises John's brilliance. Yes, I agree he is brilliant but let's go back and discuss the issue Mr. Mashaka has brought forth. Will Tanzania benefit from the low oil price. The answer is No.
The answer is no because the oil cartel. EWURA and. Corruption at the Ministry of Energy will not let prices drop
Mashaka John nataka kufanya biashara pale NY city,, vipi unawezaje kunisaidia. Ukija Tanzania nitafute nikupe mzigo wa mshikaji wangu
ReplyDeleteAbdallah 0754 543 7776
Anayoandika John ni kawaida sana. Hata mwanafunzi wa IFM anaweza kuyaandika. Hacheni kumsaidia sana jamaa
ReplyDeleteWengi hapa hawajadili mada husika, badala yake wanaongelea personality zaidi!! Ni sawasawa na ule msemo wa kumuonesha mtu mwezi wakati yeye anaangalia kidole unachomwoneshea badala ya kuuangalia mwezi!!
ReplyDeleteBado ni vigumu sana kwa bei ya mafuta kuleta auweni hapa kwetu kwani hata miaka ya mwishoni mwa tisini wakati mafuta yalivyokuwa chini ya dola 15 kwa haikuwa na manufaa sana kwa nchi yetu!
One matter Mashaka fails to discuss is leading economies are meeting growing proportions of their energy requirements from renewable sources- China, USA, Denmark, Germany. A corollary is that their investment in renewable energy technology is growing in tandem with this. Consequently demand for fossil fuels (e.g coal, oil and gas)investment will continue to decline for the foreseeable future and this will continue to exert a downward pressure on fossil fuels. Now where is Tanzania's effort in embracing renewable energy and its technology? It will be costly not to do so now as fossil energy technology is becoming outdated as fossil fuels are being increasingly shunned as renewable energy sources displace them. we appear to be behind Kenya and even Rwanda in investing in renewable energy
ReplyDeleteNdugu Mashaka, wabongo wachawi wanafika na wazandiki. Usiwaendekeze. Hii Bahari sijui kweli Au uzushi, Ika wewe kuwanunulia wafanyakazi wako 12 magari ni jambo jema lakini kwa wabongo Haina maana. Niambie baada ya miezi sita utakuwa bado unao wangapi. Wezi na wavivu. Hawataleta hata robot ya faida ya fedha unazowapa
ReplyDelete