Record petrol price hike in April likely to come in lower than expected: economists

South Africa faces another steep petrol price increase in April, but a combination of lower oil prices and a stronger than expected local currency means the blow will likely not be as bad as originally feared, say economists at the Bureau for Economic Research (BER).

“In commodity markets, the Brent crude oil one-month future closed the week more than 4% lower – its second weekly loss,” the group said in a research note on Tuesday (22 March).

“With the rand exchange rate remaining relatively firm, this means that the fuel price under-recovery – indicative of the likely price hike in April – came down to below R2.00/litre for petrol, even though it remains above R2.50/litre for diesel,” it said.

Mid-month estimates had put the petrol price increase at close to R2.50/litre for petrol and over R3.00/litre for diesel, prompting calls for the government to step in to help cushion the knock-on effects.

However, the Central Energy Fund’s daily snapshot at 22 March 2022 shows the under-recovery has reduced slightly to around R1.90 per litre for petrol and R2.80 for diesel.

The record-high increases are still expected to impact the local economy in the coming months, warned economists at Nedbank.

“Crude oil and refined petroleum together account for 16.4% of total imports, while intermediate and capital imports combined account for 58.6% of total imports,” the bank said in a note this week.

“South Africa will feel the effects of sharply higher energy prices and the general rise in intermediate and capital goods prices due to supply chain bottlenecks. Consequently, import prices are expected to increase at a faster pace than those of exports, resulting in a further deterioration in South Africa’s terms of trade.”

The National Treasury detailed its official proposals to tackle South Africa’s record-high petrol prices in a presentation to parliament on 15 March.

Treasury said that it had narrowed down its proposals to four options, with a combination of these proposals likely to be the most effective:

  • A potential one-off reduction of between 3 cents – 18 cents/litre as part of a recommended Basic Fuel Price review which could be introduced immediately;
  • A review of the Regulatory Accounting System (RAS) methodology for petrol could result in a significant decrease of R1.03 cents/litre by 2028. However, this will take significantly longer to implement than other measures and investigations need to take place to fully understand the changes that can be implemented.
  • Revising the Road Accident Fund Levy to make up a lower total of the current Basic Fuel Price. Currently, National Treasury regulated levies account for 30% of the total pump price. Treasury said a reduction in the RAF levy should be possible as the Road Accident Fund sees operational changes and improvements over the next three years.
  • Consideration should be given to a fuel price cap, although this will also require significant investigations will be required first.

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Record petrol price hike in April likely to come in lower than expected: economists