Brace yourself for higher prices
May 23, 2008
On Thursday the price of oil on the international market crossed the $135-a-barrel mark for the first time ever.
On Thursday the price of oil on the international market crossed the $135-a-barrel mark for the first time ever.
The price of a barrel of oil has risen more than six-fold since the 2002 $20 price tag and more than doubled from the same time last year.
The key drivers of these price increases are, increased demand from China, declining dollar and increased speculation in international markets.
In recent months, demand for diesel in Asia and South Africa to bridge power deficits has given the trend more momentum. But even more recently, the earth quake in China has pushed up demand for fuel to aid the rescue effort putting further strain on world stocks.
The Organisation of Petroleum Exporting Countries has also refused to supply more oil to the market. OPEC argues there is enough supply and the price is being pushed up by speculators.
Add to all this, trouble in the Nigerian oil fields and growing tension in the Middle East and it is no wonder that analysts are projecting a $150-a-barrel oil before the end of the year.
Locally, we have already seen pump prices rising. As a landlocked country, we are particularly vulnerable to these developments.
Fuel is a key component in the price of everything we consume and we can, therefore, expect prices to start rising across the board very soon.
We can also expect the Bank of Uganda to be very aggressive in trying to dampen inflationary pressures that will inevitably arise.
They will do this through the traditional methods of selling more treasury bills and foreign exchange.
This could have the double impact of strengthening the shilling and minimising the effect of imported inflation but on the other hand exporters will be hard hit because they will be earning less shilling for their dollars.
Whichever way we look at it, there will be adverse effects for this economy by rising oil prices and Ugandans should brace themselves for severe belt tightening for some time to come.
The price of a barrel of oil has risen more than six-fold since the 2002 $20 price tag and more than doubled from the same time last year.
The key drivers of these price increases are, increased demand from China, declining dollar and increased speculation in international markets.
In recent months, demand for diesel in Asia and South Africa to bridge power deficits has given the trend more momentum. But even more recently, the earth quake in China has pushed up demand for fuel to aid the rescue effort putting further strain on world stocks.
The Organisation of Petroleum Exporting Countries has also refused to supply more oil to the market. OPEC argues there is enough supply and the price is being pushed up by speculators.
Add to all this, trouble in the Nigerian oil fields and growing tension in the Middle East and it is no wonder that analysts are projecting a $150-a-barrel oil before the end of the year.
Locally, we have already seen pump prices rising. As a landlocked country, we are particularly vulnerable to these developments.
Fuel is a key component in the price of everything we consume and we can, therefore, expect prices to start rising across the board very soon.
We can also expect the Bank of Uganda to be very aggressive in trying to dampen inflationary pressures that will inevitably arise.
They will do this through the traditional methods of selling more treasury bills and foreign exchange.
This could have the double impact of strengthening the shilling and minimising the effect of imported inflation but on the other hand exporters will be hard hit because they will be earning less shilling for their dollars.
Whichever way we look at it, there will be adverse effects for this economy by rising oil prices and Ugandans should brace themselves for severe belt tightening for some time to come.