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How South Africa can significantly reduce its petrol prices

Buying oil from the United States (US), where prices per barrel are lower than the Eastern economies South Africa currently gets its black gold from, will see a “significant reduction in fuel costs” at local filling stations.

This is the view of the Democratic Alliance’s (DA) Dr. Dion George, who said the exorbitant rise in fuel prices the country has experienced in recent years “represents an exploitative and untenable burden on South African consumers.”

Not only does South Africa source its oil from more expensive producers, but the high levels of taxes on local fuels have also assisted in making the propellants all but unaffordable.

Since 2008, the country has experienced a cumulative 225% rise in the General Fuel Levy and a massive 425% hike in the Road Accident Fund levy, both of which are determined by the national government. Over the same period, the Basic Fuel Price, which is largely affected by international factors such as oil prices, has seen a much less drastic increase of 119%.

Low-income and vulnerable segments of the population bore the brunt of these increases as they accelerated the rising cost of living.

“South African households are being squeezed from all sides – unable to afford basic transport or sufficient food due to these increases and the consequent rise in food prices,” said George.

“The DA rejects the notion that already overtaxed South Africans should shoulder the economic burden created by Government’s own policies.”

The party is therefore calling for a complete review of the current fuel pricing model, the scrapping of the fuel levy, deregulation of the fuel price, and replacement of the “bankrupt and mismanaged” Road Accident Fund levy.

Why oil prices matter

Around 55% of South Africa’s petrol and diesel prices are comprised of the Basic Fuel Price (BFP), which in turn is largely dependent on oil prices.

When oil prices rise, so, too, does the cost of producing and refining petrol and diesel, driving up the BFP as a result.

This has a knock-on effect on local fuel costs as South Africa is highly dependent on imported propellants following the closure of several domestic refineries in recent years.

To illustrate this point, the hikes of 37c/l for petrol and 72c/l for diesel we experienced in August were mainly due to the average cost of Brent Crude oil increasing from an average of US$75.10 per barrel in June, to US$79.75 per barrel in July.

The average international product prices of petrol and diesel followed the increasing trend of crude oil prices, which led to contributions to the BFP of petrol and diesel of 63.59c/l and 99.09c/l, respectively, the Department of Mineral Resources and Energy revealed.

As such, sourcing US-produced WTI Crude oil, which traded for a lower average of US$73.26 per barrel in June and US$76.40 per barrel in July, could bring benefits such as a cheaper locally-made fuel as well as a lower BFP, both of which will see prices at the pumps go down.

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