Good news for diesel prices in South Africa
Month-end data from the Central Energy Fund (CEF) has cemented a sizeable drop in diesel prices for April, while petrol is expected to come in flat.
The data for 29 March 2023 shows a significant over-recovery in diesel at around 75 cents per litre, with petrol likely to come down by 2 cents if no other adjustments are made.
However, the final full-month adjustments could also reflect changes to the slate levy or other levies at the start of the new financial year – so the petrol price could swing either way.
The Road Accident Fund (RAF) levy and General Fuel Levy (GFL) will remain unchanged in April.
A drop in diesel prices will come as a huge relief not only for motorists and freight companies who use the fuel but also for the many businesses that have become dependent on diesel to keep their generators up and running during load shedding.
Businesses operating in food production will stand to benefit even more, as the National Treasury and SARS’ tax exemption for diesel will also kick in from 1 April 2023.
Through the tax exemption, any businesses involved in food production will be exempt from paying 80% of the Road Accident Fund levy attached to diesel. This is on condition that the diesel is used to power fixed generators, which are being operated specifically for such production.
Currently, the RAF levy is at R2.18 per litre. This will remain the going rate, with no increases coming into effect for 2023. Even with the refund, food manufacturers will still have to pay 44 cents per litre towards this tax.
New diesel tax break for business in South Africa comes with a big catch
The big drop in diesel prices is coming because of a lower global oil price, contributing around R1.14 to the over-recovery in prices.
Global oil markets have whipsawed over the last month, as stocks have come under pressure, but demand has also dropped.
Despite the back and forth, however, prices are significantly lower than in February, where futures were range-bound between $80 and $90 a barrel, sticking to the higher end for much of the month.
By comparison, prices have dropped to around $78 a barrel, having gone as low as $73 earlier in the month.
According to Bloomberg analysis, oil prices have stabilised as lagging US diesel demand overshadowed a disruption to shipments from Turkey.
“Oil rallied at the start of this week after a dispute between Iraq, Turkey and Kurdish authorities halted around 400,000 barrels a day of exports from the Ceyhan port. However, WTI is on track for its fifth monthly decline due to the banking crisis, recessionary concerns and resilient Russian output,” it said.
WTI is currently trading just above $73 a barrel, while Brent crude is at $78 a barrel.
Notably, WTI will soon become the pricing standard, according to Bloomberg, after Brent inventories have been running consistently low, making it an unreliable peg for global markets.
WTI – US oil – is increasingly being fed into Europe. The impact on local pricing from this shift remains to be seen.
Despite the positives from the oil price, the weaker South African rand is still a big drawback for local fuel prices. It is currently contributing to around 40 cents per litre to an under-recovery, completely reversing any positive oil gains for petrol prices, and taking a sizeable chunk out of the positive move for diesel.
The rand strengthened on Wednesday, but volatility is expected as markets await the South African Reserve Bank’s interest rate move and assessment of the South African economy later on Thursday.
The local unit has stuck above R18 to the dollar, in a persistently weaker position. It has been impacted by global risk aversion, but also many local problems like persistent load shedding.
Read: Big changes for the world’s most important oil price – what you need to know
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