South Africa has experienced fuel price increases over the past few months, with the current price hitting an all-time record high. However, this is not the end. According to the latest information from the Central Energy Fund, South Africa is set for another fuel increase on 1 August 2018
A number of factors contribute to the wholesale price of diesel, which include external influences such as the international crude oil price, exchange rate (R/$), and international supply and demand balances for petroleum products, as well as internal elements such as domestic transport costs, taxes and levies.
According to the latest information from the Central Energy Fund, the petrol price can increase in August by 2.9 cents per litre, diesel 1.2 cents and illuminating paraffin 7.5 cents a litre. At the beginning of July, diesel increased by 26 cents and 24 cents a litre for the 0.05% and 0.005% sulphur respectively. Contributing factors for this upcoming fuel increase is mainly the weak rand/dollar exchange and international oil prices, to a smaller extent. However, over the two past weeks the rand has fought its way up and is looking stronger. Should this trend persist and the crude oil price remain at bay, the fuel price increase might not be as high as initially anticipated or prices might even remain unchanged.
Basic Fuel price (BFP) of petrol, diesel and illuminating paraffin is calculated daily. This daily calculated BFP is either higher or lower than the BFP reflected in the fuel price structure at that time. If daily BFP is higher than the BFP in the fuel prices, a unit under recovery is realised on that day. When the BFP is lower than the BFP in the price structures, an over recovery is realised on that day. An under recovery indicate that fuel consumers are paying too little for product on that day, whilst in an over recovery situation, consumers are paying too much for product on said day. These calculations are done daily – to accumulate a monthly average – in the fuel price review period, of which average is then calculated for the fuel price review period is calculated. The average amount will determine the over/under recovery for the following month. During an under recovery, and if the cost of fuel remains the same, fuel distributors in South Africa will essentially operate at a loss; to avoid this, prices have to increase. The reverse applies to an over recovery. Price increase announcements are done the last Friday of every month and take effect the first Wednesday of each month.
Effect of fuel price increases
The most common form of transportation for produce in South Africa is by road; about 80% of grain is transported by road. Harvesting of summer grains is still under way, harvesting of winter cereals will start in three months and summer grain farmers will start preparing their soils, therefore demand for fuel will soon be high, especially for those who buy in advance. Should the current trend of fuel increases continue, the effect of a fuel price increase essentially reduces profit margins for the producer, as input costs increase over the long run.