Huge petrol price increases coming in June – If government doesn’t act now

With the tax holiday on fuels coming to an end, South African fuel prices are set for a huge jump in June if government doesn’t implement additional measures to curb increases before then.

The tax holiday saw the General Fuel Levy on all fuel types reduced by R1.50 per litre for April and May.

However, this was only meant as a temporary measure aimed at reducing pressure on motorists until government executes long-term plans to slow down the ever-increasing fuel prices in the country.

While we don’t yet know if local fuel prices will go up or down in June, we do know they are mainly affected by the rand/US dollar exchange rate and international petroleum prices, both of which have been performing less than ideal in May thus far.

The local currency showed weakness since the start of the month and at mid-day on 9 May is trading at R16.22 to the dollar, while on 30 April it peaked at R15.76/dollar.

The rand is also very sensitive to the dollar and could continue its weakness during May as the federal reserve recently hiked interest rates in the United States, reported BusinessTech, which generally draws money away from emerging-market economies such as South Africa.

Similarly, with the ongoing humanitarian crisis in Ukraine oil prices have skyrocketed due to Russia being a major oil producer.

Brent Crude was trading at $109.95 per barrel on 9 May, up around $2.50 per barrel month-to-date.

In addition, the European Union said it aims to ban Russian-produced oil and find alternative suppliers within the next six months, which has already caused a small rally in prices.

The oil-producing OPEC nations have also decided to maintain oil production at current rates, which will likely lead to steadily-increasing prices throughout the year, according to OilPrice.com.

The full impact of these factors remains speculative until the official fuel price adjustments are made in June, but the current picture points toward hefty fuel price increases on the horizon coupled with the return of the full General Fuel Levy.

It must be noted that the official fuel price adjustments take into account the whole month’s data, including factors such as changes in the Slate Account which will only be determined at month-end, so the picture could change significantly during this time.

Permanent plans

Fortunately, the government has already tabled four proposals to slow down South Africa’s fuel price increases over the long term.

These comprise:

• Permanent fuel price cap
• Revising the Road Accident Fund Levy
• One-off reduction between 3-18 cents per litre.
• Review of the Regulatory Accounting System methodology for petrol

The one-off price reduction could be introduced immediately as part of a recommended review of the Basic Fuel Price, said the treasury, whereas the other options would take significantly longer to implement.

The investigations required to review the Regulatory Accounting System could take years – with estimations that consumers would only see a reduction of up to R1.03 per litre by 2028, said the treasury.

The fuel price cap would require similar investigations, it said.

However, it said a reduction in the Road Accident Fund levy should be possible and could result in operational changes and improvements within three years.