South Africans must expect another substantial petrol price increase at the beginning of November‚ the Automobile Association (AA) says.
Commenting on unaudited mid-month fuel price data released by the Central Energy Fund‚ the AA said: “International oil prices remain stubbornly high and it is possible that current tensions involving Saudi Arabia‚ one of the world’s biggest oil producers‚ could place more pressure on fuel prices. More welcome news is that the rand is working in SA’s favour‚ and the recent firming of our currency against the dollar has taken some of the bite out of oil’s rally.”
“However‚ the potential price hikes are still daunting‚ especially for diesel users,” the AA said.
Petrol prices are currently set for a 40c a litre increase‚ while diesel and illuminating paraffin could spike 70c and 65c a litre, respectively‚ the AA said.
The association said the predicted increase in the price of petrol must‚ for the moment‚ be seen against the backdrop of the department of energy’s proposal to set a maximum price for the sale of 93 octane unleaded petrol (ULP) and lead-replacement petrol (LRP) fuels.
“Should this happen‚ it will allow fuel retailers to set their own prices below the maximum amount indicated by government‚ and may‚ depending on the margins‚ ease the burden on users of the two identified fuels. It must be stressed‚ however‚ that we did not participate in the drafting of the proposal‚ so details on its possible implementation remain unclear to us‚” the AA commented.
However‚ the association said it welcomed the government’s efforts to tackle rising fuel prices‚ and that the department of energy had requested input from industry stakeholders. It said the proposal looked to be consumer-friendly‚ and that the detail would clarify how this would work once all the feedback was received.
The AA said the country could not continue to be hammered by large fuel price hikes without severe economic knock-on effects. Earlier in October, the price of unleaded 93 petrol increased by 99c a litre‚ unleaded 95 by R1 and diesel by R1.24.
“The effect on bus and taxi operations could lead to fare hikes that exceed commuters’ ability to pay‚” the AA noted. “We again call on government to prioritise economic policies that inspire investor confidence. A stronger and more stable rand is the country’s only defence against the vagaries of the international oil price.”
By Tom Head for The South African
You might have heard a few horror stories about the petrol price in South Africa soaring by R1 for next month. Well, we’re here to tell you it all seems completely true.
The AA forecast a rise of R1.12 per litre of petrol, and a whopping increase of R1.38 for diesel in October – a devastating blow that has been described as “the biggest single hike” in our country’s history. But what’s fuelling this crisis, and why are costs spiralling so dramatically? We’ve got answers.
Oil prices are nearing $100 a barrel
There’s a very bleak outlook for oil prices on a global scale. This is by no means a consolation, but it goes some way to explaining why it’s getting ridiculous in South Africa. It’s not just internal factors that have ramped up the petrol price. Some commentators believe oil prices will hit a 10-year high of $100 a barrel soon.
Tension between the US and Iran
It’s hard to accept, but the world tends to revolve around America at this point. While President Trump is taking a more hostile approach to foreign policy, Iran has become one of his targets. Now, the country is one of the biggest exporters of oil in the world, but there’s trouble on the horizon.
The US government are set to impose further sanctions on Iran while pulling out of an agreement regarding a nuclear deal achieved by the Obama Administration. Production is already dropping in the Middle-Eastern country, and further financial turmoil will have a negative effect on oil costs.
Countries not producing the goods
Energy Minister Jeff Radebe has highlighted that Libya produced 1.5 million barrels of oil a day before the regime collapsed in 2011. That number is now almost at a third of what it used to be.
Venezuela’s current crisis also got a mention. They are a member of the Organization for Petroleum Exporting Countries (OPEC), but the oil industry has all but collapsed in the South American state. To put it in laymen’s terms, production is down and the cost has gone up.
A weak rand value to the dollar
It’s been a nightmare month for the rand, which has had to battle against the fierce knockout blow delivered by the recession. With the financial crisis coming as something of a surprise, the rand plummeted against the greenback and has struggled to find its feet ever since.
It soared above the R15 mark, and only recently came back down to R14.40. Most recently, Turkey’s currency tanked as a result of Trump’s intense import tariffs, aimed at stimulating industrial growth within the US.
In a global market, for every action, there is a reaction, and all emerging economies felt the knock-on effect of Turkey’s wobble.
Government subsidy backfires
Have you ever tried to help a situation but only gone and made things worse? Well, that’s effectively what happened to Jeff Radebe last month. The minister announced that the government would subsidise fuel costs for the month of September, meaning that an increase in the petrol price was smaller than forecast.
However, what were we just saying about actions and reactions? The slight relief felt this month will be compounded by the misery said to be coming our way next week.
For petrol prices to rise by a rand within a 30-day period is sharp, shocking rise. Had there been no government intervention, there’d be less of a knock-on effect. October’s rise could have been as “little” as 50 cents per litre, had South Africans been allowed to pay the full whack in September.
The rand weakened in early trade on Tuesday as an oil price plunge swung global markets away from riskier assets.
Stocks were also weaker in early trade, with the broader All-share index down 0,81% and the blue-chip Top 40 slipping 1,06%.
The rand was changing hands at R16.6100/$ by 08:52, 0,45% weaker than its 16.5400 Monday close in New York.
A renewed bout of negative sentiment concerning emerging markets ensured that the rand’s recovery came to a halt on Monday, filtering into early Tuesday trade as crude oil dropped below $30 a barrel.
“Considering this morning’s softness in commodity prices and fall in Asian equity markets, commodity-based currencies, including the rand, are likely to remain under pressure today,” said Barclays Africa currency strategist Mike Keenan in a note.
In fixed income, government bonds tracked the rand lower as investors waited for clear signs of both the US Federal Reserve monetary trajectory as well as that of the South African Reserve Bank (Sarb).
The yield on paper due in 2026 ticked up five basis points to 9,658%.
Investors will be cautious ahead of the Sarb’s monetary policy committee meeting beginning on Tuesday to determine its rate decision and an update on the bank’s inflation and growth outlook on Thursday.