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The announcement by The Automobile Association (AA) of likely further increase in fuel prices in the next month, it’s a malignant echo to the ears of many South African consumers that they wish they never heard it being announced on Friday the 17th June 2016. To the already strained South African consumers this will further erode the tight monthly budget to more negatives in their balance sheet.
It is forecast that in July 2016 an increase of up to 27 cents a litre for petrol, 61 cents a litre for diesel and illuminating paraffin 60 cents a litre.
Winter has set in and those who are using paraffin as a source of heating and cooking will experience a sharp incline of their energy prices, mostly it is people who are in the low end of the income bracket.
Fuel prices and food prices pressure continue to intensify. The recovery in the rand exchange rate was short lived and its prospect of gaining strength is not promising. Since the February 2016 sharp decline in fuel prices, thereafter the fuel price has increased twice already, this was impacted by the 37% increase of crude oil where the February favourable decline of 22% was short-lived, where the octane petrol is R1.47/litre more than it was in February 2016, thus the February decline of crude oil had little-to-none positive impact onto the consumer’s budget.
The current forecast of fuel prices increase, it means that consumers who use petrol will pay R1.68cents/litre more [(to date increase) R1.47 + R0.21 (the forecasted increase)] than what were they paying. Thus If an individual travels ±80km/day to and from work and due to the high traffic volumes in major cities in South Africa during peak times, I presume based on my measure of fuel consumption for the 2.0 litre vehicles at the current fuel prices that it costs averagely R1.28/km, thus average fuel cost a day is R102.40.
How the S.A fuel prices are influenced and are currently further increasing:
The supply surplus in February 2016 in the oil market became a stun. “US crude oil stocks increased by a remarkable 10.4mmb in the week ending February 26, the largest addition since early April 2015. That brought inventories to an astonishing 162mmb more than the 2010-2014 average and 74mmb above the bloated levels of 2015” by Art Berman, a contributor to Forbes Magazine
The strong correlation between U.S. crude oil stocks and world oil prices is inevitable influencing the fuel prices in South Africa. When the U.S. crude oil production reached a peak of 9.69 millions of barrel of crude oil per day, then the South African fuel prices at the end of February 2016 decreased by 69 cents a litre for petrol. The tank farms that account for almost 70% of total U.S storage, when combined were at 88% capacity. Prices generally fall hard when the U.S. oil storage exceeds 80% capacity of which that is what happened in February 2016.
After the February, the U.S. decided to freeze oil production and decrease its output, this substantiate the decline of the oil over-supply. In the month May 2016 the U.S. crude oil production fell to 150 000 barrels per day and the global over-supply is 680 000 barrels per day, when compared to the February world production over-supply which was more than 2 million barrels per day.
It is forecast by EIA that production will further decrease by another 650 000 barrels of oil per day by September.
Due to the exchange rate of U.S. dollar to the Rand, this means that in September South Africa will be importing oil at a higher cost as the U.S. is continuing to decrease its oil production, thus forcing the forcing to increase fuel prices.
