16 - 22 March 2000

Local oil prices stable as Enemalta relies on reserves

by Franco Aloisio

Despite the international hike in the price of oil which has reached an all time high in the US and many European countries, Malta has been unaffected by this increase. The Minister for Economic Services, Josef Bonnici, told The Malta Business Weekly that Enemalta is at present relying on substantial reserve stocks of fuel which had been purchased at a much lower price than the present US$30 per barrel.

These reserves were stocked towards the end of last year as a Y2K precautionary measure.

Now Enemalta is using these fuel stocks in a time when the international cost of oil is extremely high, said Prof. Bonnici.

He said the impact of the international increase in oil prices on the economy will be that of an added cost which reduces competitivity and affects the country's balance of payments.

"At the moment these reserves are being used by Enemalta

as a cushioning effect and so far Malta has been unaffected by the price hike in oil production," he said.

Asked what will happen after the reserves are depleted, Prof. Bonnici said one will have to examine the scenario and see whether the price will go down or up.

"This is a very volatile scenario. As a matter of fact, last December the government decided to do away with oil hedging agreements which established a fixed price for oil covering a number of months.

Generally Enemalta absorbs most of the increases in the price of oil through a number of agreements with particular suppliers," the minister said.

However petrol station owner and GRTU President Carlo Cini lamented that the price of oil has been going up steadily over the years and has never gone down, as happens abroad.

At present the price of petrol is 37c4 inclusive of the 15 per cent VAT introduced on fuel in the last budget. This is considerably lower than many EU countries such as Germany, the UK, France and Italy but far more expensive than Luxembourg, Spain, Ireland and the US. This week the price of a gallon of petrol reached an all-time high in the US of US$2. This increase was reflected in all developed countries and has further augmented over the last months.

Until March 1999, the price of oil per barrel was US$10. Within a year, this figure has tripled to US$30. Quoting past oil-price shocks of the 1970s and 1990s, experts are predicting that these increases will create inflation and drive the world economy into recession.

This increase in the price of oil is being attributed to production cuts by the organisation which brings together countries producing oil - OPEC - and a stronger than expected global demand for fuel.

This has pushed international oil stocks to their lowest levels for many years. OPEC is currently holding discussions with its members and a decision to increase production levels and hence reduce the price of oil is expected towards the end of this month.