Recently, some analysts feared that the price of a barrel of Brent oil could reach $200. However, it was at $107 on Thursday, April 14, and had even fallen back below $100 at the start of the week. What is your analysis of this development?
A downward trend is emerging. In fact, it is a normal phenomenon. The international oil price has reached a point where it is self-correcting. A decrease in demand causes this rebalancing. Part of the consumption, and thus of the demand, disappeared due to the high price level which had peaked recently. The experience we have had in the past is translated as follows: reached a threshold where on the one hand consumption shrinks and on the other hand marginal production revives, the oil price will stabilize around a new median, slightly below the average price before. It is the fundamentals of supply and demand that become decisive. External phenomena such as war between two countries can have a temporary influence.
The Organization of the Petroleum Exporting Countries (OPEC) has lowered its global forecast for oil demand for 2022. Is this a factor that could affect the price?
This will definitely affect the price. The projections are based on demand forecasts, which depend on industrial activity that uses oil. Forecasters use various indicators to make estimates, but it is difficult to predict developments with certainty. There have been so many changes. The situation is dynamic, and there is nothing more volatile than the price of oil.
Let’s talk about the local situation. Is the Department of Commerce responsible for preventing the State Trading Corporation (STC) from raising fuel prices in Mauritius again?
STC is a “collecting agent” for the Government and the Mauritius Revenue Authority. It is the state that determines the taxation of petroleum products sold in the country. We will simply bet on the amount of taxes imposed on fuels, which, it must be remembered, are very heavily taxed. In the event that a decision is made to maintain or lower fuel prices in Mauritius, simply turn the knob. STC has a good leeway and is credible towards the banks as a public body. According to the law, the Minister of Trade has decision-making authority over STC. He is the one who approves its budget and the appointment of its CEO.
To what extent can an amount of Rs 4 billion advanced these days absorb any increase in fuel prices in the local market?
The rumor of the amount of Rs 4 billion is a masquerade. Fuel prices can be adjusted and set by the Minister of Trade at any time. It’s not magic. There is a “coverage approval” for the amount of overdrawn credit that can be used. The “price mechanism” also provides for a “price stabilization fund” supplied by surplus revenue. The formula exists. You just have to trigger the mechanism.