Yo-yo fuel prices explained

20 November 2019 | Web Article Number: ME201917240

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LIKE a yo-yo, fuel prices keep going up and down.

In June 2019 unleaded 93 octane petrol cost R16.57 a litre. Then in July the price decreased to R15.61. In August the petrol price went up to R15.72. In September it went up to R15.83. In October it dropped to R15.79. On 6 November, it dropped again to R 15.66.

Why is there this constant fluctuation which gives consumers a headache as they battle to stay abreast of their financial expenses?

Meshel Muzuva, a senior finance and economics lecturer at private higher education institution MANCOSA explained that oil volatility is likely to continue and that many competing factors are in play, including the country's difficult economic position and the vagaries of the international oil price.

Yo-yo fuel prices explained
Meshel Muzuva Senior Finance and Economics Lecturer at Mancosa

She said the price of fuel was reviewed on a monthly basis and there were many local and international factors affecting this evaluation.

“Local factors include the exchange rate of the rand against the US dollar, taxes, the recent implementation of the Road Accident Fund (RAF) levy, the fuel levy and customs, which account for 36% of fuel costs.

“The pricing of oil at an international level and shipping costs place considerable strain on South Africa’s fuel import efforts.

“The weakening of the rand affects oil prices because oil is traditionally traded in dollars. International oil prices may decrease in future, however, for as long as the rand/dollar exchange rate depreciates, it will still cost more to buy oil, thus causing the fuel prices to continue fluctuating rapidly.”

Muzuva said the first quarter of 2019 saw South Africa’s economy drop drastically by 3%. The main contributing factors were load shedding and a noticeable decrease of investment into the country. Following the release of the GDP, the rand depreciated by almost 2% to R14.76 against the dollar, resulting in an increase in the fuel price index of 7.6% in April. The petrol price subsequently increased from R14.60 in March to R15.94 in April.

“Unfortunately, consumers are being placed under increasing pressure to keep up. The fluctuating fuel costs will see many South Africans burning even larger holes in their pockets, with many spending considerable amounts of their income on fuel costs restricting their spending potential in other, sometimes necessary areas. This would negatively impact on South Africa’s GDP.”

She added that the latest fuel price decrease was due to a brief rand appreciation against the dollar in the past month.

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