Petrol price unlikely to drop below R20 per litre for two years, expert warns

Another fuel price spike is looming – and with international oil prices in flux and the rand still high, SA might not see fuel drop below R20 a litre for at least the next two years.

But it’s not “impossible” to go back to R20 a litre, director and chief economist of Econometrix Dr Azar Jammine said.

He said the international oil price was currently high at nearly $120 a litre per barrel and the average last year was $70 a litre per barrel – but even if the oil price went to $90 per barrel, it would still provide scope for a considerable reduction in the fuel price.

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“It is not impossible to hit R20 a litre again. In the same way in the past, we went from hitting R17 a litre at one point and went down to R12 a litre,” he said.

“This is volatile and can work the other way.” Jammine said it was the combination of the international oil price and the rand stabilising which could help in seeing the fuel going down to R20 a litre.

“If you were to tell me R10 or R15 a litre, then I would say it was virtually impossible but back to R20 a litre is not outside the rails of possibility,” he said.

The minister of finance and the minister of mineral resources and energy jointly announced the general fuel levy was reduced by R1.50 from March to June.

For this month the levy will decrease by just 75c, with Automobile Association spokesperson Layton Beard saying there was definitely going to be an increase in the next month.

The fuel price increase is expected to kick in next week.

Beard said the data from the central energy fund, which calculated the average on a daily basis, revealed there would be an under-recovery which led to an increase.

“At the moment the possible increase is about R1.80 for 95 petrol, R1.65 for 93 unleaded fuel and diesel and R1.70 for illuminated petrol.

“And with the relief government gave of R1.50 now halved, 75c will be added onto the fuel levy, leading to the increase being higher because they will have to include those cents,” he said.

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“The R1.80 petrol for 95 octane, the R1.60 for 93 unleaded, as well as diesel, would add the 75c but the illuminated petrol has no levy so it will stay the same.”

Beard said the government stated they cannot keep the reduction of the fuel much longer than June, because it does not have enough funds to cover the shortfall.

“People are already struggling and this means, they will continue to struggle even more,” he said.

While petrol prices was subject to taxation or levies in virtually every country, in South Africa, the general fuel levy was the fourth largest tax source for Treasury after PAYE, VAT and company tax, generating about R89 billion per annum for the fiscus.

Director and chief economist of the Efficient Group Dawie Roodt said with an increase of about R2.50 expected this month, the maximum fuel spend could go up to R28 a litre, which excluded the recovery sale of the strategic reserves.

Roodt said this was not sustainable and the best answer to this was government needed to spend less money.

He said it was wrong to give a break on the fuel levy.

“Even if they did not give this break on the fuel levy, it still would not be sustainable because fiscal accounts are unattainable as it is,” he said.

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“The real problem is not the taxes but spending too much money.”

CEO and chief economist at Antswisa Transaction Advisory Miyelani Mkhabela said the Russia and Ukraine confrontational risk has created shortages in oil and food products.

“This supply chain bottlenecks are causing problems of general price increases, affecting household and business consumers,” said Mkhabela.

“The crisis will not be resolved anytime soon and the challenges will continue, pushing repo rate higher.

The July Monetary Policy Committee will increase the repo rate by 25 basis points,” said Mkhabela.