Brace yourselves for another fuel price hike

2014-06-20 16:39

Petrol and diesel prices are due to increase by 22c and 8c respectively on July 2 after unrest in three oil-producing countries, the volatile exchange rate and the increase in the demand for Brent crude oil by China.

Brent crude came close to $115 (R1 232) a barrel on Thursday, a nine-month high. The increase in Brent crude oil prices was a result of the sudden eruption of the crisis in Iraq, which put a squeeze on surplus oil production capacity.

“Brent crude prices continue to increase, owing to concerns of supply disruption due to geopolitical tensions in Iraq, the second-biggest oil exporter in the 12-member countries of Opec,” said Grain SA economist Wandile Sihlobo.

Sihlobo said the supply of oil was hit by the unrest in Libya, where violence and civil turmoil cut oil output by more than 1 million barrels a day, leaving Libya’s crude oil exports close to zero.

Another oil-producing country that has experienced unrest, which resulted in a Brent crude supply shortage, is Venezuela. A wave of labour disputes hit the country, disrupting the production of Brent crude oil and putting further strain on the already dwindling global oil supply.

Sihlobo said the other concern was that China, one of the biggest oil consumers, would demand more oil and that was going to affect oil prices “and this will later filter in on fuel [petrol and diesel] prices”.

China’s exports beat forecasts in May on firmer global demand, rising 7% from a year earlier and quickening from April’s increase of 0.9%.

China’s healthy economic growth suggests it will demand more oil, thereby adding to increasing fuel prices.

But news of rising fuel prices are even worse for South Africans. Local fuel prices are mainly influenced by the international price movements, disruptions in oil-producing countries and exchange rate movements.

Sihlobo said the weak rand was the main contributor to higher local petrol prices.

“Last month, the rand was at firm levels of about R10.35 to the dollar. We saw the impact that had on fuel. Petrol and diesel prices decreased on 4 June by 19c a litre and 17c a litre respectively.

“However, for July, we expect petrol to increase by 22c a litre and diesel by 8c a litre, the main driver being the exchange rate, which has now weakened to levels of R10.70 to the US dollar,” said Sihlobo.

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