Petrol is getting too expensive in SA

Oil running to nearly $90 per barrel has pushed fuel prices sharply higher, and the trajectory looks set to continue.
Prices in SA may be comparable to average prices globally, but petrol is expensive compared to income levels. Image: Moneyweb

The increase in the petrol price of 53 cents a litre and that of diesel of 80 cents a litre from Tuesday (February 1) had the Automobile Association (AA) describing the rise in oil prices as “ominous”.

“The major factor in the latest hike is the rapid strengthening of benchmark crude oil prices to nearly $90 a barrel. The last time Brent crude touched current levels was in October 2014, more than seven years ago,” the AA said following the latest monthly adjustments in the prices of petrol, diesel, paraffin and gas.

“A combination of factors is pushing oil higher, not least the imbalance between supply and demand as the lower-than-expected economic impact of the Omicron Covid-19 variant pushed economic activity higher, and crude production lags.

“In addition, there are political jitters around the Ukraine, which could see a switch to increased oil use throughout the EU if Russia restricts natural gas output in response to sanctions threatened by the USA and United Kingdom,” said the AA.

“The February increases will push fuel prices in SA close to the record highs experienced in December 2021.

“Going into February, 95 octane petrol inland will cost R20.14 per litre with the same fuel costing R19.42 per litre at the coast; both fuels will cost just 15 cents less than they did in December.”

Read:

The Department of Mineral Resources and Energy noted in its announcement of the new prices that the main reason for the increases is that oil prices rose sharply.

“The average Brent crude oil price increased from $76 to $87 during the period under review,” it said.

“This led to higher contributions to the basic fuel price of 95 and 93 octane petrol (91,24 cents and 93,50 cent per litre respectively), of diesel 50ppm and 500ppm (by 119.10 and 117.85 cents per litre respectively) and illuminating paraffin by 127.23 cents per litre.”

Fortunately, the rand appreciated somewhat during January, from an average of R15.92 to R15.51 per dollar during the period under review.

The stronger rand tempered the effect of higher oil prices by nearly 26 cents per litre for petrol and just more than 25 cents per litre for diesel.

The rand was even stronger on Monday at R15.30 per dollar – but one day in a month is insignificant, especially with forecasts pointing to oil maintaining its upward trend.

Petition

The increase in petrol prices prompted the AA to renew its calls for a review of the manner in which fuel prices are calculated.

“While the decrease in fuel prices for January was naturally welcomed, we remain convinced that a review of the fuel price in SA is necessary. The increases for February are significant and push our country’s fuel prices near record territory again and will, undoubtedly, have a knock-on impact on other consumer products and services,” says the AA.

Read: Fuel prices decrease, but outlook not good

It notes that its petition to #ReviewTheFuel is gaining momentum and close to 25 000 people have already signed to urge government to initiate a review of all the components of the fuel price, as well as conduct an audit of all existing elements to determine if they are still applicable and correct.

The association calls on the minister of finance to announce such a review when he tables the national budget towards the end of February, saying that mitigating fuel costs effectively will be “for the benefit of all South Africans”.

Don’t hold your breath

However, the usual increases in fuel taxes and levies are more likely from the podium in parliament on February 23.

The state needs money.

In addition, tax on fuel is an easy and effective way to collect revenue for governments worldwide.

The difference in fuel prices worldwide boils down to the level of tax.

The market price of crude oil is the same for everybody, while markets set exchange rates. Free markets also set shipping, refinery and distribution costs, with governments adding either a bit of tax – or a lot.

While petrol is very cheap in some countries and even very close to gratis in a few, it is as a result of government subsidies or governments contributing to production costs, effectively applying a negative tax rate.

How SA rates globally

GlobalPetrolPrices.com noted in a study conducted in the third quarter of 2021 that the average price of petrol was $1.17 per litre globally. This is equal to R16.97 per litre, based on the exchange rate at the time.

Then, mid-2021, the petrol price was R17.20 per litre in SA.

This placed SA just above average, or number 91 on the list of 167 countries or regions analysed.

The research report notes that as a general rule, richer countries have higher prices while poorer countries and the countries that produce and export oil have significantly lower prices.

“The differences in prices across countries are mainly due to the various taxes and subsidies for gasoline. All countries have access to the same petroleum prices of international markets but then decide to impose different taxes,” noted the report.

Out of the 167 countries, 57 had a price below $1 per litre. Prices were between $1.00 and $1.50 in 71 countries, and $1.50 to $2.00 in 35 countries.

Venezuela has the cheapest price, just $0.02 per litre, followed by Iran at $0.06. Hong Kong had the most expensive price of $2.50, followed by Central African Republic, Netherlands and Norway.

Qatar and the US are among the top 10 richest economies, but have very low gasoline prices of below $1, according to the Global Petrol Prices report.

Relative cost

However, even if fuel prices in SA are comparable to average world prices, petrol is expensive compared to income levels.

Global Petrol Prices compared prices with GDP per capita, indicating that petrol is more expensive in SA than the nominal fuel price suggests.

This test of affordability lumps SA solidly with countries with higher-than-average fuel prices, putting us at 107th place on the list compared to 91 out of 167 when looking only at price.

It is actually worse when adjusting the figures for exceptional cases, such as comparing the exceptionally high per-capita GDP in Liechtenstein and Monaco with fuel prices. In fact, the analysts did not publish these figures.

On this basis, the cheapest petrol is to be had in Qatar (high income and low prices) and Iran (very close to free petrol, even if income is not very high). The US and Luxembourg follow next on the list.

Petrol is the least affordable in Burundi, the Central African Republic, Malawi, Madagascar and Mozambique.

Oil producing Nigeria deserves a special mention. While petrol is very cheap at only $0.41 per litre – there are only five countries with lower petrol prices in the world – the stuff is unaffordable for Nigerians. In terms of affordability, Nigeria falls to number 111 on the list.

AUTHOR PROFILE

COMMENTS   0

You must be signed in and an Insider Gold subscriber to comment.

SUBSCRIBE NOW SIGN IN

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.
INSIDER SUBSCRIPTION APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING

Follow us:

Search Articles:
Click a Company: