Why Uganda will not benefit from the slump in Global Oil Prices

fuel-pumpWhen Ugandans query the constant upsurge in oil prices, they are often reminded by fuel dealers  that the global oil price trends largely driven by the Middle East suppliers especially Saudi Arabia are the reason to blame.

However, developments in the recent past suggest that the dealers only use the global oil prices as the determinant of what they charge the end user at the pump as and when it is convenient to their cause. Oil prices worldwide have dropped to nearly half at $58.50 a barrel from the previous $100 but Ugandans are yet to truly experience the effect of the drop.

A look at what is happening to the Oil Prices in the neighboring East African Countries may give us ideas on why this is so.

As of December, a litre of Diesel at Kigali pumps had reduced from Rwf 1050 to Rwf960 and it was speculated that if the global oil price decline continues, Rwandese motorists might have a New Year gift in form of another announcement from the Rwanda’s Trade Ministry cutting prices.

Unlike Uganda, Rwanda can easily respond to a cut in global oil prices with an almost proportionate cut of the price at the pump because the Rwandan government regulates the oil prices. In Uganda oil prices are purely determined by the market forces of demand and supply.

Like Rwanda, in the past couple of Months, Kenya’s Energy Regulatory Authority announced a cut in the Diesel Prices and Petrol Prices.

Though a similar development has been anticipated by Ugandan Consumers, fuel price cuts are not something likely to happen with immediate effect since the tumbling of the global oil prices also coincides with the festive season, a time when the demand for fuel shoots up drastically because many Ugandans are travelling across the country. With such an increased demand for fuel, in a market dictated by the market forces of demand and supply, it is unlikely that the prices will go down in Uganda, at least in the short term.

But even when looked at from the long term perspective, the tumbling oil price is not good news for Uganda.

Uganda intends to start oil production in 2017 and it is exploring even more areas for possible oil production. Such slumps in oil prices are likely to discourage investment in the emerging oil sector. That’s why lately Tullow Oil, one of the biggest investors in Uganda’s Oil Sector, has been compelled to rethink its investment strategies.

Whereas the silver lining for Uganda in the new development hinges on Tullow’s decision to focus on East Africa particularly its investments in Uganda and Kenya withdrawing cash from some of its unprofitable investments elsewhere, the dim facet of the picture is the rife speculation that Tullow may not survive the price storm hitting the sector globally and could therefore be ripe for a takeover from a larger company.

[author image=”https://ugandaoil.co/wp-content/uploads/2014/12/Zakaria-Tiberindwa.jpg” ]Zakaria Tiberindwa is a Writer, Researcher and Legal Professional. He obtained a Bachelors Degree in Law from Uganda Christian University and has completed his Post Graduate Diploma in Legal Practice at Law Development Centre. He has more than 5- years experience in journalism and creative writing. He has skills in writing, journalism, research, legal aid practice, web design, web-content management, social media marketing, public speaking, training, print magazine-designing, editing, photography and video-shooting and editing. He is a performance poet and has been an active member of Uganda’s largest community of Poets, the Lantern meet of Poets. He blogs at the wireless connection and please [follow id=”@musumbazak” ][/author]

Leave a Reply

Your email address will not be published.