Hefty fuel price hike may not be last one

2018-10-09 06:00
PHOTO: Sourced

PHOTO: Sourced

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THE massive petrol price increase predicted for Wednesday may not be the last this year.

The price of 93 octane fuel will go up by 99 cents per litre, while 95 octane will be R1 more at the pumps. Diesel will go up by R1.24 per litre, the department said.

This puts the price of petrol over or close to R17 a litre – the highest recorded point of all time. Illuminating paraffin will increase by R1.39 per litre (R1.04 wholesale), while LP gas will increase by R1.79 per kilogram.

The increase will be the biggest in South Africa’s history (excluding the impact of taxes) and is likely to have a severe impact on an economy in recession.

Increased fuel prices impact directly on all manner of prices because it raises the cost of transport.

Fast-rising world crude oil prices are mainly to blame, and also the depreciating rand/dollar exchange rate — oil imports are paid for in dol- lars.

Global crude oil benchmark Brent Oil traded steady on Friday, not far off a four-and-a-half-year high of $82.55 reached earlier in the week. But many analysts predict that the crude oil price could rise to as much as $100 a barrel before the end of this year, on fears of a supply crunch brought on by sanctions in Iran.

Oil and gas major Total SA CEO Patrick Pouyanne said a supply loss in Iran and declining output in Venezuela may help push prices back to levels last seen in 2014, Bloomberg reported.

The Organisation of Petroleum Exporting Countries has shown little sign they will boost production, which helps to lower world oil prices, in spite of U.S. President Donald Trump’s demand to lower prices.

Concerns over tightening supplies are growing as buyers of Iranian crude shun purchases from that country before U.S. sanctions take full effect in November.

Trading houses such as Trafi­gura Group and Mercuria Energy Group have forecast oil prices of over $100 a barrel, while banks including Bank of America and JPMorgan Chase & Co lifted their price forecasts.

Commenting on the fuel price increase, the Automobile Association said on Thursday: “We estimate this increase could extract a further R2.5 billion a month in transport costs from an economy that is already on the ropes.”

The fuel price increase will raise the cost of doing business, while consumer disposable income will shrink.

It holds even further negative implications for consumers with debts, as it may force the Monetary Policy Committee to raise interest rates this year.

One commentator, Dr Andrew Golding, CEO of Pam Golding Properties, said last month: “Persistent rand weakness, rising inflation expectations and repeated petrol price hikes suggest the first hike of the new interest rate cycle may occur in late 2018 rather than in 2019 ...”

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