Thursday, 8 January 2015

GAS AND PETROLEUM PRICE VARIATIONS

I have the kinds of friends that call me a loss whenever I say something. I don't know if I say the funny things or the stupid things or the funny things at a stupid time. This always gets me digging into world problems trying to understand one  after the other so that I can assure them I am not so much of a nuisance to the world like they think. I found myself baffled with the flactuation of prices of Gas & Petroleum worldwide.

With the prices of crude oil on the world market slamming down by almost 60%, one would expect the resultant prices of gas & petroleum to shift downwards all around the world but this is sadly not the case. The prices have been on a constant upward shift in some countries. This got me consulting people who would know why and my seniors about this and this is what I learnt from the discussions.

1. An economics scholar, unlike me, Sonia, presented what I thought was a valid argument about the Dollar rate's flactuation in different countries. The US Dollar being a major currency of exchange, countries with stronger currencies in terms of value versus the US Dollar are having their gas prices trickle down while those with weaker currencies against the Dollar are left in the struggle hustling and bustling with stay put prices.

An alumnus of mine by the name Roger Semakula, an experienced banker and also well acquainted in the fields of risk management goes on to say:

1. Primarily, world over, the prices of oil are determined with speculation i.e the price is set well in advance. The quantity supplied or demanded can vary. The benefit of this is that in the event that the price rises, you buy at the agreed "low" price. The disadvantage is that if the prices fall, as the case is now, you still buy at the agreed "high" price. The Government of Uganda using the PPDA regulations also uses Framework contracts that can run for upto 3 years for items that are regularly used like stationery, bitumen, meals, tyres etc. In all, the parties to the contract face risks depending in which direction the price(s) move. Case in study: Uganda secured fighter jets from Russia basing on the future proceeds from the sale of its oil.
 
2. The current fall in world oil prices is part of the wider strategy to fight the increasing influence of Russia over her neighbours using the proceeds from the vast oil reserves it has. Russia did it to Ukraine when it demanded that the oil and gas is paid for in advance. With the falling oil prices, Russia is getting less from the sale of oil and thus has less resources to antagonize her neighbours; and

3. Many oil producers like Libya are not members of OPEC i.e they freely sell their oil to any interested party and the quantities sold cannot be subject to production quotas as the case is with the OPEC members. There is an over supply of oil that has led to the current low prices.

Well, there it is. I had hungered for enlightenment but after analyzing all the above, I couldn't ask for more. I had been answered with clarity. Even Oliver Twist wouldn't ask for more soup in this case.