The hardening positions by the US and China on their year-old trade war ahead of high-stakes talks in Washington, will likely have an impact on June’s petrol price in South Africa, along with the introduction of a carbon tax by the local government.
As an importer of oil products, South Africa is already sensitive to changes in the international oil price.
This week, US president Donald Trump threw trade talks between the world’s two largest economies into disarray as he threatened to raise tariffs on Chinese imports, roiling global markets.
Trump threatened not only to more than double tariffs on $200 billion of Chinese exports to the US, but also raised the possibility of imposing a 25% tariff on an additional $325 billion of goods.
Bloomberg reported that China’s top trade envoy, vice premier Liu He, is due to land in the US capital on Thursday afternoon and go immediately into discussions with Trump’s top negotiator, Robert Lighthizer.
And trade war concerns, along with a global oversupply of oil, has caused Brent crude prices down towards $70 a barrel.
Impact on South Africa
For South Africa, a drop in oil prices would point to a short-term win. According to the latest data from the Central Energy Fund (CEF) of South Africa, the most recent drop in the price is having a net positive effect on the outlook for local petrol prices.
As of 8 May 2018, the lower oil prices have reduced the costs of international petroleum components, leading to a 5 to 7 cents per litre reduction in the basic fuel price.
However, this is currently being offset by weaker currency exchange rates, making a net increase (of 8 to 10 cents per litre) more likely.
Economists predict that the oil price could reach $80 a barrel in 2019, which would lead to further hikes in the petrol price. In a worst-case scenario, at $90 a barrel, the petrol price could go as high as R20 a litre.
According to PwC chief economist Lullu Krugel, for every $1 movement in international oil prices, there is a 25c impact on the local petrol price in the same direction.
Economist Dawie Roodt said that motorists should expect to see higher prices at the pumps for the next few months, as the US position combines with local pressures around the election.
“This fourth increase in a row might not be the end of it and that further price hikes in the next few months were ‘highly likely’ and could take the country beyond the historically high prices notched up in the recent past,” he said.
“Increased American sanctions against Iran, one of South Africa’s major suppliers of crude oil, are definitely going to be a factor as will the rand-dollar exchange rate and the outcome of the upcoming election.
“If the rand continues to slide against the US dollar and a shortage of crude drives up prices, the result could be too horrible to contemplate,” Roodt said.
As an added burn for June, motorists should also anticipate the introduction of an additional tax to the fuel price.
Since April, consumers would have contributed R5.54 towards indirect taxes on every litre of petrol bought, and R5.39 on every litre of diesel.
This comprises R3.52 (petrol) and R3.37 (diesel) for the general fuel levy, R1.98 for the RAF levy (for petrol and diesel) and 4 cents for customs and excise taxes (for both petrol and diesel).
The introduction of South Africa’s Carbon Tax will see an additional 9 cents per litre on petrol and 10 cents per litre on diesel added.
This change will come into effect from 5 June, taking the per litre tax burden to R5.63 and R5.49 for petrol and diesel, respectively.