AA - Mar 2021

Author:  Staff Writer
8 March 2021

Brace for more petrol price hikes in South Africa:  economists

Economists have warned that a surge in global oil prices, coupled with a weaker and the introduction of fuel taxes mean that South Africans will pay more at the pumps in the coming months.

The price of Brent oil surged above $70 a barrel on Monday (8 March) after Saudi Arabia said the world’s largest crude terminal was attacked.

However, the surge is just the latest in a line of increases, with prices also extending higher on Thursday after the OPEC+ oil grouping surprised with a decision to keep its output quota unchanged.

These increases mean that the oil price has gained more than 30% so far in 2021.

“The combination of a fast-rising oil price and a weaker South African currency pushed the rand oil price even higher last week to levels last seen in the second quarter of 2019,” said economists from the Bureau for Economic Research (BER).

If this is sustained, the group warned that South Africa will see another large petrol price increase in April.

“The elevated rand oil price will add to the combined 26c/litre rise in the general fuel levy, Road Accident Fund and carbon levies set for April announced in the February budget.”

It added that the domestic petrol price has already increased by a cumulative R1.86/litre in the first three months of the year.

“Driven by the much faster-than-expected oil price increase so far in 2021, the petrol price averaged somewhat higher than expected between January to March 2021.

Importantly, the price will start Q2 2021 notably higher than we projected in early 2021.

“Along with growing indications of bottleneck-induced input cost pressures – not just in South Africa but also globally – this raises upside risks to South Africa’s headline CPI inflation forecast.”

The BER said that the headline CPI is currently projected to average around 4% during 2021.

Taxes

Taxes and levies on fuel currently make up the majority of the fuel prices – something that was not always the case.

According to lobby group Outa, the Basic Fuel Price (BFP) – which is mainly affected by the international oil price and the rand/US dollar exchange rate – made up the largest component of the fuel price between 2009 and 2014.

However, with government increasing taxes and levies over the past decade, the BFP component now accounts for a much smaller portion of the price.

Direct fuel taxes – being the fuel levy and road accident fund levy – account for R5.88 of the fuel price; however, Outa said that the various taxes and levies that make up the “non-petroleum related costs” – which includes things like the wholesale and retail profit markings, and a few smaller transport and storage costs – push this up to R9.48.

In March 2021, this is 58% of the current price (95 grade).

April will see further tax hikes around fuel come into effect, with a significant addition of 26 cents a litre to fuel prices because of increases to the General Fuel and Road Accident Fund levies. These were announced by National Treasury in the 2021 budget speech.

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