Petrol could cost about R30 a litre in October, and the Central Energy Fund’s latest month-end data shows why. Under-recoveries, the gap between what fuel costs to import and what motorists are charged at the pump, stand at R3.12 a litre for 95 petrol and R2.93 for 93, BusinessTech reported.
What the numbers say
An under-recovery means the regulated price is below the actual cost of the fuel, and the Department of Mineral and Petroleum Resources closes the gap in its next adjustment. The last one, on 2 September, raised petrol by R1.34 a litre and diesel by R3.15. Diesel is in the same position: wholesale under-recoveries are R2.73 a litre for 0.05% sulphur diesel and R3.13 for 0.005% sulphur diesel. Illuminating paraffin is at R3.38.
Investec chief economist Annabel Bishop expects an increase of about R3.00 a litre. “The petrol price is likely to increase by around R3.00 per litre next week, thanks to the weaker rand and higher oil prices,” she said. Whether that takes 95 petrol over R30 is close. September’s inland price was R26.92 a litre, so an extra R3.00 gives R29.92, while the full R3.12 under-recovery would give R30.04. The slate levy is set separately and could still change the result. The official adjustment takes effect on Wednesday 7 October.
Oil and the rand
Brent crude is near US$107 a barrel, and the oil price alone accounts for up to R3.18 a litre of the under-recovery. The rand, at about R16.44 to the dollar, on the weaker side of its recent R16.00 to R16.50 range, offsets only around four cents a litre. BusinessTech also notes tension in the Middle East, where Yemen’s Houthis are blocking Saudi Arabian ships in the Red Sea.
Inflation and interest rates
Higher fuel prices, Bishop said, will “push CPI inflation back towards 5.0% y/y and could fuel another repo rate hike in South Africa in November”, even though the Reserve Bank sees interest rates holding for the next 12 months or so before they start to come down. The Reserve Bank raised the repo rate to 7.25% on 23 September and pointed to the fuel price shock as an inflation risk. Markets have also priced in two 25 basis point moves in the United States, in October and December.
What it costs a business
For a business that runs vehicles, every extra rand a litre goes straight into operating costs. Earlier this month the projected increase was smaller: our report on how October’s fuel hike grew to R2.88 for 95 petrol worked through the cost for a delivery bakkie, which comes to about R1,080 a month more for a vehicle covering 4,000 km on diesel that is R3.00 a litre dearer. With the latest data, that estimate is, if anything, a little low.
