In comparison, it took over 11 years for the petrol price to go up two-fold from R6.12 per litre in May 2006 to R12.86 in July 2017.
While there have been previous spikes in fuel prices such as during the 2008 financial crisis, there have been none as drastic as what South Africans have been subjected to over the past two years.
We looked at these older fuel price hikes to get a better idea of why we are currently in the situation that we are, and when we can expect it to get better.
For the period under review, July 2006 to 2022, the inland price of Petrol 95 in South Africa has had two noticeable “spikes” – not counting this latest one.
The first was in 2008, when the cost per litre went from R7.16 to R10.70 in 12 months, reflecting a 49% increase year-on-year.
This was during the brunt of a global recession while South African inflation was running at an incredibly high rate of over 11%, whereas the rand was trading at around R7.90 to the dollar which at that point in time was a low point for the local currency.
In the same breath, this was also around the period when the price of Brent Crude oil reached its highest ever, at over US$130 per barrel.
The rand/US dollar exchange rate and international oil prices are the main determinants for South Africa’s fuel prices, with these unpredictable factors being two of the biggest pushers behind the 2008 price hikes.
The high prices lasted between one and two years, as in July 2009 Petrol 95 was back at R7.90 per litre.
The only other sudden increase in fuel prices then came in 2018, when Petrol 95 sat at R16.02 per litre in July of that year after costing R12.86 the year prior, a 25% jump.
Not only was this the result of a sharply depreciating rand, reported Mail&Guardian, but it was also due to higher costs of importing oil products and increases in the General Fuel and Road Accident Fund levies to fall in line with inflation, which was a better, but still unideal 5% at the time.
The international price of oil did not play as much of a role this year as supply remained consistent and most of the negative factors that affected the fuel price were limited to South Africa’s borders.
The higher prices weren’t short-lived, however, as they never went close to the R13-per-litre mark again.
Issue at hand
The unprecedented fuel prices South Africans are currently facing are somewhat the results of a mix of the above factors.
In 2008, three big reasons for the meteoric rise in the cost of oil prices were relatively low supply, increasing demand, and “the role of speculation” – according to James Hamilton’s Causes and Consequences of the Oil Shock of 2007–08.
These factors are believed to be at play again in 2022, only on a larger scale.
One of the world’s most prolific oil producers, Russia, has been hit with mounting sanctions due to its invasion of Ukraine, thus slowing down the movement of this country’s oil throughout the rest of the world.
The oil-producing nations (OPEC) are also hard-up to produce more of the liquid gold and have rejected the requests of many countries, in turn forcing these nations to nearly deplete what’s left of their reserves in an effort to stave off the petrol price inflation.
The “role of speculation” could be of relevance in modern ages, too.
In 2008, the magnitude and speed of the oil price collapse were, in part, due to a “speculative price bubble” caused by investors buying the product not as a commodity but rather as a financial instrument to reap profits from, said Hamilton.
Considering the wider availability of internet and the increase in the number of retail traders and speculators when compared to 14 years ago, there are larger, more, and increasingly diverse pools of investors who want to make back what they spent by pouring money into oil, thereby also playing a role in pushing up the price.
Similarly, demand for oil products has been on the rise as countries emerge from tough lockdown restrictions and get back to life as normal.
With more sanctions on the way for Russia, dwindling reserves, and oil prices not yet reaching what they did in 2008, oil supply is set to become an even bigger issue in the coming months than it already is and this will undoubtedly have a negative impact on local fuel prices.
This is on top of a nearly two-fold rise in shipping costs since 2020, coupled with increasing delays as certain trade routes are blocked off.
The ever-depreciating rand going from R14.40/dollar in January 2020 to now be flirting with the R17.00/dollar mark is not doing fuel prices any favours, either, and the country’s capacity to strengthen its currency in the near term looks rather bleak.
More, but luckily minor domestic factors that are adversely affecting the prices of fuel include the Durban harbour still being damaged due to flooding and not working at full capacity, the return of the full General Fuel Levy in August, and looming social unrest akin to the July 2021 riots.
In reality, there’s no telling how long the monthly increases in fuel prices will last as nearly two years after they started they have yet to reach the peak, which analysts believe could be around R40 per litre.
One silver lining comes from the government scrapping 10 cents per litre from the inland price of Petrol 95 and cutting the basic fuel price by 3 cents per litre in May 2022 – although these interventions have done little to soften the blow of continued hikes.