Brace for Shock Fuel Hikes

South African consumers are facing a shock increase of at least 58 cents per litre in the fuel price over the next couple of months, warned Stanlib economist Kevin Lings on Thursday.

The increase could be noticeably higher if the latest spike in the oil price is sustained, he said.

Lings said that as recently as September 2010, the petrol price (95 octane in Gauteng) was R8.07/l. It has since risen in each of the past five months to R8.99/l - an increase of 11.4%.

"But the price is set to jump dramatically higher over the next couple of months. For all of 2010, the SA petrol price averaged R8.26/l," he said.

He said that in the budget, Finance Minister Pravin Gordhan opted to increase the fuel levy (including an increase in the Road Accident Fund), by a combined 18c/l with effect from April 6 2011.

This means that the total fuel levy now rises to R2.61/l, a little less than 30% of the total price of one litre of petrol. The levy on diesel is slightly lower at R2.46/l.

"Unfortunately, the oil price has also spiked significantly in the past couple of weeks and the rand exchange rate has tended to weaken since the end of 2010.

"The combination of a higher oil price and a weaker rand means that the current daily under-recovery on the petrol price is a massive 57c/l, while the average under-recovery for the month to-date is a little over 40c/l. And today the oil price has once again jumped sharply higher to around $115/bl," Lings said.

He noted that the government was yet to announce the rise in the petrol price required to fund Transnet's new fuel pipeline. This increase is expected to be between 5c/l and 10c/l.

"The combination of a higher fuel levy, the under-recovery on fuel price and the pipeline levy means that SA's petrol price could rise by anything from 58c/l to 85c/l over the next couple of months.

"This would push the petrol price up to anything from R9.57/l to R9.84/l," he said.

The lower end of this range would imply an increase of 18.6% in the petrol price since September 2010, while the upper end is a rise of 21.9%, he said.

If the fuel price moved sideways for the remainder of 2011, the average price would have risen by 14.4% year-on-year.

Source: fin24, Thursday, 24 February 2011