- Diesel prices fell by 1% in May to US$1.50 per litre
- Petrol prices increased slightly from US$1.53 to US$1.54 per litre
- Zimbabwe’s fuel pricing is influenced by taxes, levies, and foreign exchange considerations, leading to price rigidity
Harare-The Zimbabwe Energy Regulatory Authority (ZERA) has decreased diesel prices for June from May prices in US dollar terms.
Diesel prices went down by 1% from US$1.52 in May to US$1.50 per litre in June due to a combination of oversupply and trade tensions resulting in decreased international oil prices.
Year to date oil prices have decreased by 12.3%.
Despite this, petrol prices marginally increased to US$1.54 per litre from US$1.53 per litre.
Even though diesel slightly decreased, these figures still position Zimbabwe’s fuel prices among the highest in the region.
In the SADC region, countries like South Africa, Zambia, and Botswana have adjusted fuel prices to reflect these global shifts, albeit to varying degrees.
For most oil-importing nations, if oil prices drop, it typically translates into lower fuel costs at the pump, as governments and fuel retailers adjust prices to reflect cheaper import costs.
However, Zimbabwe’s fingertip change in fuel prices suggest a disconnect between global market trends and local pricing dynamics. The economic and social implications of Zimbabwe’s high fuel prices are stark when viewed regionally.
One explanation for the price rigidity lies in Zimbabwe’s fuel pricing framework, which is heavily influenced by a combination of taxes, levies, and foreign exchange considerations. The government imposes significant duties on fuel, including the Strategic Reserve Levy, carbon tax, and Value Added Tax (VAT), which constitute a substantial portion of the pump price.
These fixed costs may limit the extent to which global price declines can be passed on to consumers.
Zimbabwe’s reliance on imported fuel, paid for in US dollars, introduces complexities related to foreign currency availability and exchange rate volatility. Even as global oil prices fall, the cost of securing foreign exchange to import fuel may counteract potential savings, keeping retail prices elevated.
The United States, Russia, Saudi Arabia, and Canada remain the top 4 oil-producing nations.
In addition to these individual country producers, the Organization of Oil Producing Countries, or OPEC, remains a powerful cartel of oil producers worldwide that can influence the global market price.
Demand for oil could further decrease if OPEC+ follows through to increase production, which would further saturate the market and depress prices.
For instance, in April 2023, OPEC surprised markets by announcing output cuts totalling around 3.66 million b/d, or 3.7% of global demand. This sent the price of oil up, skyrocketing 7%.
OPEC members collectively produce a significant portion of the world's crude oil, accounting for around 40% of global oil production.
OPEC countries possess the majority of the world's proven oil reserves, estimated at around 79% of the total. The Organization of the Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq, with the signing of an agreement in September 1960 by five countries namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
These countries were later joined by other nations, with some countries suspending or terminating their membership over the years. Currently, OPEC comprises 12 member countries, each playing a significant role in shaping the global oil market.
Equity Axis News
