No festive cheer at the pumps

Johannesburg – Any fuel price relief from next month is likely to be limited as a weak rand and rising oil prices are likely to send the price at the pumps higher by the festive season.

According to the Central Energy Fund’s latest figures, released on Wednesday, the South African government is overrecovering by between 23c and 27c on every litre of fuel – petrol or diesel.

This has prompted the Automobile Association of SA to predict that diesel prices is likely to drop by just eight or nine cents a litre. Illuminating paraffin is expected to be down by only three cents or so, but the petrol price is showing declines of between 18 and 22 cents a litre, says the association.

This follows the October drop in the price of petrol of 2c a litre, while the wholesale price of diesel went up by 53c.

The Automobile Association says the decline is thanks to “sustained declines in international oil prices since mid-month”.

At the middle of the month, the association was concerned that oil prices, which have rebounded to some degree, may push the price of fuel higher, given the continued weakness of the rand.

“Fuel prices have returned to levels last seen in March of this year,” the AA notes.

However, it cautions “volatility in both oil prices and the exchange rate continues to be evident, and we advise motorists not to take future price reductions for granted”.

Investec expects the rand to weaken to around R14 to the dollar in december should the US increase interest rates. The weakness will occur because investors will seek the safer haven of a developed market.

This would put additional pressure on the price of fuel, while a higher oil price – which the AA says is showing signs of an uptick – could result in the fuel price being adjusted before year-end.

This would affect South Africans who are planning to go away over the festive season. Oil is currently at $46.57.

The AA is not alone in urging motorists against celebrating too soon.

Debt Rescue CEO Neil Roets says the limited relief of the lower fuel price will mostly be offset by the severe drought that is plaguing South Africa’s grain producing regions, which will lead to significant price increases in basic foods.

Yesterday, the South African government announced water restrictions in Johannesburg and Pretoria as the country continues to battle with its worst drought in 23 years.

Independent economist Dawie Roodt adds consumers could be in for further price shocks as the local currency continues its slide against other major currencies.

Roodt also notes SA’s unemployment numbers – with one out of every four working age South Africans out of a job – is also not good news for the country.

“The country is broke, consumers are broke and even slight price adjustments in the cost of basic necessities such as food have a major impact on the poorest of the poor.

“The drop in the fuel price will almost certainly be temporary because the short-term outlook for the local currency remains problematic and we may well be looking at a fuel price hike before the end of the year.”

The fuel price movement should be announced Friday afternoon.

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