Oil – Black Gold or Mute Assasin

Oil is a commodity that cuts across every area of our lives directly or indirectly. Oil is used to power electricity generators, motor vehicles, airplanes, and the by products used in grease machines. It is therefore important to know the price trends of this commodity, what affects its prices and what to look for to be able to understand what it all means. 

For the African region, the main indicator to look at is the global brent crude price. There are other prices that you will find, such as WTI crude, OPC Blend and Mars Blend all applying to the US market. The price of brent crude currently stands at $72 a barrel and has risen from $38.55 a barrel since June 2020. The price is measured using barrels as this was the traditional storage of oil. One Barrel is equivalent to 159 liters (about half the volume of a bathtub) which translates to $0.45 per liter. Unless your government has subsidy program you would then pay higher than the $0.45, why? Well, you will have to add at least some shipping costs, which are $13 per barrel and then depending on the transportation from the port if its trucks that is an additional $20 per barrel or if it is a pipeline $5. Therefore, for illustration purposes if you use trucks in your country which is the most preferred means in Africa your total cost per barrel before any taxes would be $105 per barrel translating to $0.66 per liter.  

You might be wondering but we pay higher than this yes because, the oil marketing companies must make a profit hence they add a profit margin, governments make money as they add various taxes like road levy, value added tax etc hence the price that lands at the pump might be upwards of $1 per liter. 

Let us use an illustration to show why this price affects you, if the price of Brent crude goes up from $ 72 per barrel or $0.45 per liter to $82 per barrel $0.51 per liter this is the probable ripple effect, 

If it costs $13 per barrel to ship it to your country it will now cost $14.82, once it lands at the port, assuming using a truck where it would have cost $20 per barrel now it will cost $22.8 meaning at the pump before taxes it will now cost $0.75 instead of $0.66. The impact of this would be an increase in the following, 

Price of transportation. Whether you use public, or private your commuting costs would go up. If it is an absolute necessity for you to use transportation, then your disposable income will reduce with the amount of increase you have allocated to the transport budget. 

Cost of electricity. If your country relies on generators fueled by petrol or diesel then the cost of your monthly electricity bill will go up. This, as stated on the above about transportation, will also eat into your disposable income. 

Cost of goods. If cost of electricity goes up and cost of transportation locally goes up, then the price of manufactured goods and farm produce will increase in the supermarkets as the suppliers will pass that cost to consumers. This will further eat into your disposable income. 

If the aggregate disposable income reduces in the economy, then economic growth will also reduce. Hence Oil prices have an impact on your everyday life. In part 2 of this blog will look at what affects the price of Oil 

Published by kadzutu

passionate about the communitys financial prosperity

2 thoughts on “Oil – Black Gold or Mute Assasin

  1. This is nicely explained…thank you. Hoping there will be mention of negative oil prices in part 2 of this blog. Can’t wait! Many thanks.

    Like

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