Petrol vs diesel price moves explained

Diesel, petrol pump.
Diesel, petrol pump.

Cape Town - There will be some relief for consumers at the fuel pumps when the retail price of 95 (ULP and LRP) petrol goes down by three cents a litre, the wholesale price of diesel 0.05% sulphur by 76c/l and that of diesel 0.005% sulphur by 78c/l at midnight on Tuesday.

There will, however, be no change in the retail price of 93 (ULP and LRP) petrol in January.

Fin24 user Robin wrote to ask why there is such a big difference between the price adjustments of petrol and diesel.

According to Philip Purnell, head of public affairs at the Automobile Association of SA (AA), one reason has to do with the refining costs, which are different for petrol and diesel. Diesel is a heavier fraction and easier to refine.

"However, that doesn't change much. The key issue relates to capacity at refineries. If a refinery is maxed out, they naturally charge more, if the opposite happens, they charge less," explained Purnell.

"There seems to be a drop in the demand for diesel at the moment. This may be as a result of a drop in the apparent demand for diesel cars."

He added that there is also the issue of road transport like trucks tailing off towards the end of the year, reducing the demand on the refineries. Because of the general economic downturn, industry, which relies more on diesel than petrol for its liquid fuel energy requirements, may also be buying less diesel.

READ: Happy new year as petrol price stays the same

Another contributing factor for the difference, is that the Northern Hemisphere is also having a warmer than usual winter and that would reduce usage and increase refinery capacity, since diesel is also used for heating and power generation.

Hein Baak, fuel price specialist at the Department of Energy, told Fin24 that there are two aspects causing the fluctuation of the petrol and diesel price. The one is the price of crude oil and the second is the rand exchange rate.

"What we see at the moment is that both these factors are pretty much the same for both petrol and diesel. Therefore, it is not playing a big part in the price adjustment at the moment," explained Baak.

"The important factor is the global demand for the products. Currently it is summer in the Southern Hemisphere. It is all about demand and supply.

"If there is a shortage of diesel, but a big demand, the price will increase. It could also be that there is currently a big supply of diesel in the market and when there is a over-supply, the price usually decreases."

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