Forget about lower petrol prices

2014-07-04 00:00

“WILL the petrol price ever go down again?” I was asked by a clearly exasperated colleague this week.

He had just heard that the price went up by another 29 cents per litre (coast) on Wednesday.

To many of us, it seems as if when the price goes down by a few cents per litre, the next month it just goes up again by a whole lot more.

Our fears are justified.

Since January, cumulative monthly price increases have equalled R1,04 per litre, while the overall declines have equalled only 37 cents.

This picture gets a lot more scary when one looks at it over the long term.

Consider that in the year 2000 the average petrol price was only R3,26 per litre.

Unfortunately, I told the colleague, I did not expect the fuel price to decline at all, any time soon. Expect it to reach R20 per litre — maybe not this year or the next, but not too far into the future, I said.

Sure, there may be occasional monthly petrol-price declines due to short-term swings in the rand, the international Brent crude oil price and the price of refined petroleum products in the Middle East, but the odds are that the petrol price will, over the longer term, simply keep rising, just as it has over the past decade.

The only thing that can significantly stagger the inexorable rise is a big slump in global demand for oil, such as occurred during the last recession.

The oil price slid from $147,27 (R1 588,68) per barrel just before the recession in 2008, to as low as $60 (R647,27) per barrel in the months thereafter.

The decline was driven by lower demand, a weaker dollar and speculation.

The chances of another global recession appear remote, over the next three to five years at least.

And with millions of new middle-class emerging-market consumers entering the car market every year, we can expect the demand for oil to increase rapidly.

One factor that could drive the price down, for a while at least, is if the government relinquishes some of the taxes it raises out of the petrol price.

Taxes, ostensibly to pay for things such as propping up refinery margins, pipelines and the Road Accident Fund, make up over a quarter of the pump price.

But the government has never lowered these before. In fact, it has threatened to increase them further, as revenue from other taxes has fallen, in line with the weak economy.

And the refineries all need substantial upgrades to be able to make cleaner fuel. There is now even talk of replacing e-tolling with a new national fuel levy.

So forget about a petrol-price windfall from the government.

Something else that might provide some short-term relief for the petrol price is rand appreciation — a stronger currency allows us to import more oil for every rand.

Unfortunately, the outlook is not great on that front either.

The economy is barely growing, with no sign yet of a turnaround.

South Africa’s credit ratings have been downgraded and developed countries are once again attracting international investment inflows (as opposed to those funds finding a home in emerging markets like South Africa).

The rand will likely weaken in the short term, rather than strengthen.

There are also global oil-supply constraints to consider, which are driving up world oil prices.

The United States’s shale oil production is costly, political turmoil in Iraq will dampen significant oil production increases from Opec countries, and there are other infrastructure bottlenecks among the traditional oil producers.

So what do you do?

Well, other than burying petrol in your garden for the future, the best option is to use as little of it as possible.

There are any number of fuel-saving tips available online these days, but one that is often not mentioned is to move house, to as close to your place of work as you can.

My own view is that we will see more and more electrically driven vehicles on our roads, and much sooner than we realise.

• Edward West is the business editor at The Witness.

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