Opinion

Open market oil sales is the new normal in South Sudan

Posted by Claudia Padayachy

13-Jul-2020


The Republic of South Sudan is in a period of transition – both politically and economically. The Transitional Government of National Unity is in place, and agreement was recently reached over governance of the country's states.
The Ministry of Petroleum is also driving change, implementing a number of reforms.

One of the major changes has been to end the practice of pre-financing deals. The country is now benefiting by selling its crude oil on the open market. 

Hon. Eng. Awow Daniel Chuang, Undersecretary at the Ministry of Petroleum, explains, “Following the investigation ordered by President Salva Kiir Mayardit a year ago, the Ministry of Petroleum has ended the practice of pre-financing deals done directly with oil traders, to boost competition and ensure the country achieves maximum value. Previously, the oil was sold at discounted prices. There is now open market bidding and the oil can be sold at premium prices.” 

The pre-financing deals saw oil offered at about 10% discount. The introduction of open tenders has promoted transparency and accountability in the marketing of crude oil. All sale transactions are now openly being published in the Ministry's annual marketing report.

The International Monetary Fund has been highly critical of pre-financing oil deals. In March 2019, the fund urged the South Sudan government to stop contracting oil advances which are expensive and non-transparent, saying this will ensure oil revenue would be “fully available for financing budgetary spending”.

South Sudan is currently struggling to sell oil, as are all oil-producing countries around the world. Demand for the product has radically reduced, leading to a massive drop in prices. The Coronavirus pandemic and resultant global lockdown has seen widespread travel restrictions, and demand plummet. Oil prices have recovered slightly after many countries started easing lockdown measures. And as global business slowly returns to normal, the oil price is expected to stabilize at a higher level. 

Demand for South Sudanese Dar Blend crude oil is particularly strong in Asian markets such as China, Singapore and Japan as their refineries are capable of handling the highly acidic oil. South Sudan is a member of the non-OPEC group, OPEC+, which signed a Declaration of Cooperation in 2017. This agreement governs the management and control of inventories in order to help balance global supply and demand while stabilizing oil prices. 

OPEC and OPEC+ agreed to cut production by 9.7 million barrels per day (bpd), or 10% of global output, from May 1, after the Covid-19 crisis destroyed a third of global oil demand.



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South SudanOilpetroleumCrude oilopen marketCoronavirusGovernment of National Unity

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