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Why motorists are paying more for petrol

Steep fuel price hikes are the result of higher levies, which came into effect this week, as well as a turbulent international oil market

Motorists were looking forward to lower fuel prices; Central Energy Fund data released last week indicated a likely drop of 11 cents a litre for 95 octane and 25 cents for 93 octane petrol next month.
Steep fuel price hikes are the result of higher levies, which came into effect this week, as well as a turbulent international oil market. (Oupa Nkosi)

The price of petrol has shot up amid surging international oil prices and as new taxes come into effect.

According to official amounts published by the department of energy, by Wednesday, motorists would pay R17.10 per litre of 93 unleaded petrol and up to R17.32 per litre of the pricier alternative, 95 unleaded petrol — a full R1 more than in March. Diesel now costs up to R14.77 per litre.

The steep fuel price hikes are the result of higher levies that came into effect this week, as well as a turbulent international oil market.

On Wednesday, an increase to the fuel and the Road Accident Fund (RAF) levies — announced in Finance Minister Tito Mboweni’s February budget — came into effect. The general fuel levy meant that the price of petrol and diesel would increase by 15 cents per litre. The RAF levy resulted in an above-inflation increase of 11 cents per litre. 

Combined with a one cent higher carbon fuel levy and a steady excise levy, the combined fuel taxes on petrol now amount to R6.15 per litre. This means motorists will be paying 40% to taxes for every litre of fuel purchased.

Last month the Automobile Association urged the government to stop ignoring the knock-on effects of severe fuel price rises. “The cost is not only direct, but throughout the value chain, and is battering consumers from all sides. It requires urgent review to help ease pressure on consumers who are battling to stay financially afloat.”

The National Agricultural Marketing Council (NAMC) also warned of the fallout that rising fuel prices will have. In a note, NAMC agricultural economist Thabile Nkunjana said higher fuel prices increase the cost of production and transportation of food, which places an additional burden on consumers.  

“Because food prices both domestically and across the global market remain elevated since November 2020, the poor and vulnerable consumers across South Africa are going to feel the fuel prices hikes.”

The price of petrol has crept up every month this year and may continue to climb amid increases in international petroleum prices, worsened by a dipping rand-to-US dollar exchange rate.

According to data from the Central Energy Fund, last month the average rand-to-US dollar exchange rate was 14.9829 compared to 14.7631 during the previous month. This led to a higher contribution to the basic fuel prices on petrol and diesel by 10.70 cents per litre and 10.03 cents per litre, respectively.

In its forecast from last month, the South African Reserve Bank (SARB) said international oil prices have been revised up sharply, resulting in higher petrol price inflation, at 12.7% for 2021. The SARB predicted that oil prices will average about $62 per barrel in 2021 (up from $50) and $60 per barrel in 2022 and 2023.

According to a report by the Organisation of the Petroleum Exporting Countries (Opec), crude oil futures prices reached a 13-month high in February. This was supported by optimistic assumptions about tightening supply to demand and bolstered by the extreme weather in the US, which resulted in a sharp decline in oil production.

The futures market remained bullish in anticipation of a recovery in demand, the Opec report states. This is after world oil demand contracted by 9.6-million barrels per day (mb/d) in 2020. Oil demand is forecast to recover by 5.9 mb/d in 2021.

But as demand slowly recovers, supply may remain muted  — driving up prices. According to Opec, preliminary data indicate that global oil supply decreased in February by 1.31 mb/d month-on-month to average 92.28 mb/d, down by 7.62 mb/d year-on-year. Supply from non-Opec countries is expected to have declined by 2.6 mb/d in 2020, while growth of 0.95 mb/d is anticipated for 2021.

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