Massive rise in petrol price expected

Investors are also increasingly concerned about possible disruptions to oil supply caused by the growing geopolitical tensions in the Middle East. (Oupa Nkosi, M&G)

Investors are also increasingly concerned about possible disruptions to oil supply caused by the growing geopolitical tensions in the Middle East. (Oupa Nkosi, M&G)

Glynos said the raised price would represent fuel inflation of 16% ­compared with last ­September.

The jump will be about 7% higher than August's fuel inflation rate compared with its price last year, a rate that was marked by the price hike of 22 cents a litre at the beginning of this month.

Petrol will cost between R11.47 and R11.82 a litre, depending on where it is bought.

Glynos said three factors were driving the petrol price: the weaker rand against the dollar, state-imposed slate ­levies and the oil price.

Growing tensions in the Middle East, increased optimism around the euro debt situation, speculation of another round of quantitative easing in the United States and increased demand there have contributed to a higher oil price, which is up by almost 15% in the past four weeks.

The rand has hovered between R8.1 and R8.4 to the dollar since the beginning of August. The rand was almost R1.50 weaker at the end of July this year than it was at the same time last year, climbing from R6.8 to the US dollar to R8.2 during the period.

Delivery
"Of course, oil is sold on the international market in US dollars," said Glynos, explaining that a weaker rand translated to higher oil prices.

Bloomberg reported on Tuesday that crude oil for September delivery had risen to $96.68 a barrel on the New York Mercantile Exchange, the highest price in three months.

It said the price rose as consumer optimism increased when a senior German lawmaker indicated that concessions were possible for the Greek debt crisis.

Investors speculated that a meeting between German Chancellor Angela Merkel and French President François Hollande on Thursday would help to ease the region's debt crisis.

Investors are also increasingly concerned about possible disruptions to oil supply caused by the growing geopolitical tensions in the Middle East. As tensions between Iran and neighbouring Israel have mounted over Iran's nuclear programme, investors have shown increased anxiety.

Nuclear aspirations
The US recently notched up its sanctions and diplomatic pressure on Iran to halt its nuclear aspirations.

"The Middle East is a minefield of political tension," said Glynos. "The oil market is relatively tight. It's not like there's a supply constraint at the moment, but when there is a threat of supply constraint, it would manifest itself in the price."

Rising demand for oil in the US coupled with the past week's four-month low in oil reserves in that country served to tighten availability.

The possibility of another petrol price hike before the end of the year is "conceivable" because of the risks of the weak rand, Glynos said.

"On the other hand," he added, "geopolitical tensions in the Middle East could ease, leading to a price decrease."

 

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