Petrol price spike on the horizon

Motorists should brace themselves for a sharp increase in the petrol price over the next few months. According to Stanlib economist Kevin Lings, South Africa’s petrol price could rise by anything from 58 cents a litre to 85 cents a litre in that time, pushing the petrol price up to as high as R9,84 a litre.

Lings said this considerable increase in the petrol price is precipitated by a combination of factors including rising oil prices, the weakening rand and increased levies on petrol.

“The oil price has spiked significantly in the past couple of weeks and the rand exchange rate has tended to weaken since the end of 2010,” said Lings.
“Today [Thursday] the oil price has, once-again, jumped sharply higher to around $115 a barrel.”

Lings said the increase in the oil price was driven almost entirely by supply disruptions due to the political upheaval in the Middle East. “Libya is the ninth biggest producer of oil in the world and the biggest in Africa,” he said. “Markets are nervous and the oil price has definitely responded.

The petrol price is currently R8,99 per litre, up 92 cents since September and analysts believe the petrol price will increase by 40 cents a litre in March. In addition, Finance Minister Pravin Gordhan on Wednesday announced a general fuel levy increase of 10c a litre and an eight cents a litre increase towards the Road Accident Fund. These levies will take effect from April 1.

But economist Tony Twine from Econometrix, said that compared to the previous two years increases to the fuel levies were quite low. In 2009 the levies were 40,5 cents a litre and in 2010 they were set at 25,5 cents a litre.

Twine said that if petrol prices increase by 40 cents in March as anticipated, it would make petrol 16,5% more expensive than it was in March last year. He expects diesel to increase by 62 cents a litre and paraffin to increase by 68 cents a litre. This would make paraffin 30% more expensive than it was in March last year.

Twine said the rising cost of oil would also effect other products that have oil inputs; this includes anything from rubber and bitumen to fertiliser and detergent.

“The real driver of petrol price increases is the underlying oil price. It’s going to drive everything else upwards as well, and add to these products cost structures,” he said.

Lings said rising oil and petrol prices would impact negatively on discretionary spending. “Given that petrol has a weight of 3,93% in the CPI, this would conservatively add 0,5 to 0,7 percentage points to the average inflation rate in 2011, assuming the rand does not weaken any further,” he said.

“It would also hurt consumer spending, especially if there is also an introduction of toll fees on the national roads of Gauteng.”

Faranaaz Parker

Faranaaz Parker

Faranaaz Parker is a reporter for the Mail & Guardian. She writes on everything from pop science to public health, and believes South Africa needs carbon taxes and more raging feminists. When she isn't instagramming pictures of her toddler or obsessively checking her Twitter, she plays third-person shooters on Xbox Live. Read more from Faranaaz Parker

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