While some experts have warned that South Africa’s petrol prices could climb to as high as R40\/litre on the back of Russia’s invasion of Ukraine, this is highly unlikely, says Efficient Group senior economist Dr Francois Stofberg.<\/p>\n
Instead, the Efficient Group’s ‘extreme scenario’ would see petrol reach somewhere around R30\/litre – and several things would have to go very wrong in the coming months to reach this price.<\/p>\n
“Before the last fuel price increase in South Africa, oil prices were trading around $105 a barrel. In our view, oil prices can reach $200 a barrel, although an upper limit around $185 is more probable,” Stofberg said.<\/p>\n
“The simple fact is that the world cannot completely boycott Russian oil and gas. At least not overnight.”<\/p>\n
At these extreme levels, and considering the stickiness of oil prices, every company and country will be motivated to produce oil, he said.<\/p>\n
“The rand has also been strong and should remain so in 2022. I doubt that we will see an average rate higher than R15.50, but even R14.50 is likely. But let us assume that oil prices go up to $185\u00a0 – from the $105-level it was trading before the last fuel price increase – and the rand depreciates to R15.50 (from R15.00), this would imply that the cost per barrel in South Africa would increase with 80%.”<\/p>\n
Stofberg noted that motorists currently pay R21.35 for unleaded 93 petrol inland, but only R10.90 (51% of the total price) is oil-related. The remaining 49% of the price is taxes and costs that go to producers and distributors in South Africa, he said.<\/p>\n
“So, even if prices increase 80%, consumers will only feel 51% of that 80% price increase (40.41%), meaning that fuel prices will most likely, in a worst-case scenario, only go up to around R30 a litre.”<\/p>\n
The indirect impact of fuel prices<\/strong><\/p>\n “It is somewhat true that if fuel prices increase, \u2018everything\u2019 becomes more expensive – but too many South Africans believe that everything becomes unbearably expensive,” said Stofberg.<\/p>\n “My barber is probably not going to charge me more because fuel prices have increased, neither will my gym fees increase. My insurance, bond (or the rent that I pay), or car repayments are not increasing.”<\/p>\n These items constitute a much larger share of household expenses than food prices, which everyone is concerned about, he said.<\/p>\n “If you want a more accurate estimate of the indirect impact of higher fuel prices, it is better to consider the share of \u2018petroleum products\u2019 as inputs among producers.<\/p>\n “According to Stats SA, this share is 8.8%. So, if fuel prices are increasing by 40.41%, producer prices can increase between 3.56% and 12.36%.”<\/p>\n Fortunately for consumers, and considering historic price increase differences between consumers and producers, producers will, at most, only be able to pass on about 25% of this increase, although it might be a lot lower. In doing so, producers might add another 1.71% to the CPI, he said.<\/p>\n “In total, including direct and indirect impacts of a worst-case scenario, where oil prices increase to $185 a barrel for a prolonged period, and the rand depreciates to R15.50, consumer prices in SA might increase from the expected 4.5% to 7.51%.<\/p>\n “In the context of South Africa’s high historic inflation rates, 7.51% does not really warrant all the hysteria that we currently see in the media.”<\/p>\n
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