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14.11.2008 Editorial

Oil on troubled waters


AMID all the economic doom and gloom there is one bit of good news for the Ghanaian consumers - fuel prices have come off their record highs of @149 to sixty dollars, bringing relief to the Government and its citizens.

In fact, to businesses which were hardest hit, with the Oteng Gyasi-led Association of Ghanaian Industries tearing their hair out in well nigh desperate responses, the nation was obviously happy that some kind of intervention had been unleashed, and the ruling party should obviously be elated about it.

Last week's substantial price declines were already providing much-appreciated relief for motorists at the pumps, after petrol spiked to GH¢5.25. The indications are that even bigger declines are on the cards next month, with some analysts predicting that petrol could go even lower during the first half of next year.

The caveat - there is always a caveat when it comes to such matters - is that for this to happen, current trends in the international oil and currency markets need to continue. In a nutshell, these are a falling dollar, oil price, and a relatively stable cedi-dollar exchange rate.

Few analysts are prepared to put any strategic body parts on the block in these turbulent times, especially when it comes to the currency.

But the short-term outlook for oil is certainly bearish - the market shed 10% last week as the extent of the global economic slowdown became clearer, and not even China's $600 billion stimulus plan could reverse the slump.

As the G20 talks get underway, not a single country, with the exception of South Africa, was even invited, and if we expected a sign of our irrelevance to the globe of our being as a country, well we have it just seen it.

As the Governor of the Ugandan Central Bank said, the old architecture will soon go away, and Africa as a bloc of 54 countries will soon, and very soon, come out on its own. And it will not be by Obama's ascension, but our own bootstraps.

The price of crude is now almost 60% below its July peak of $147 a barrel, and demand seems set to continue weakening even faster than producers can cut production.

US crude stockpiles are expected to rise for the seventh successive week, reflecting an estimated 10% reduction in daily consumption over the past month.

That's the short term. In the medium term, it is likely that prices will overshoot on the downside, just as they did when rising, so a bit of a bounce can be expected when the panic subsides.

And in the longer term, oil remains a non-renewable resource, and supplies are running out - the age of easy oil is gone forever.

Lower oil prices will put the brakes on the search for alternative fuels, which almost guarantees another spike when demand eventually starts to rise again.

We in Ghana, which has excited the nation with our oil find, must surely dampen the mass enthusiasm raised by the politicians, and look elsewhere - our agricultural sector, mass commercial mechanised farming - for our salvation in the long term.

In the meantime, we expect that the minimal price reduction of transport fares announced by the Government should be enforced, if the voters are going to appreciate and empathise with them.

Disclaimer: "The views/contents expressed in this article are the sole responsibility of the author(s) and do not neccessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article."