petrol price


Petrol prices, a look to the future: South Africans likely to pay R20/litre by 2020

“These quite conservative estimates for the rand and oil price could see an increase in SA fuel prices to at least R17.30 per litre at the end of 2018. And it can increase to above R20 per litre before the end of next year.”

petrol price


Petrol prices in South Africa are already at record high levels, with unstable global oil prices and a weakening rand painting a grim picture of the future.

South African consumers are feeling the pinch. Inflation rates are slowly swelling, Value-added Tax (VAT) has been pushed up a notch, and rising petrol prices continue to apply pressure on motorists, commuters and retailers.

According to analysts, this stress is unlikely to subside anytime soon, in fact, for South Africans, a decrease in petrol prices may be confined to the realm of nostalgia.

The issue of rising fuel prices is a multifaceted global phenomenon; concomitant to supply and demand, complicated by international affairs.

It’s not a simple conundrum to unpack, and even if understood, the inanimate petrol pump doesn’t reward knowledge or punish ignorance – in short, for ordinary citizens, it’s death and taxes and rising petrol prices; uncomfortable and unavoidable.

Still, the questions must be asked: why are petrol prices bleeding South Africans, and when are the fuel hikes going to halt?

Petrol prices: International factors

Crude oil

The international supply and demand for crude oil is by far the biggest single determining factor for petrol prices. Countries which have rich deposits of the subterranean fossil fuel are fortunate in the sense that they have an independent supply. This monopoly results in otherwise barren nations attaining huge amounts of wealth through exports – the Middle East is a prime example.

Unfortunately, for the most part, South Africa does not have that luxury. While it’s proposed that the Karoo holds expansive shale gas reserves, the controversial effects of fracking seem to outbalance the country’s gains.

In any case, South Africa is at the mercy of the international ebb and flow of crude oil prices. Global political instability and a reported dwindling of fossil fuel reserves hurt growing economies the most.

Global currencies

The sensitive global currency market is dominated by trade. Recently, this has been demonstrated by an ongoing trade-war between two of the world’s largest economies – the United States and China. Spearheaded by Donald Trump, stern import tariffs have caused currency casualties along the way, some of them being collateral.

Most recently, Turkey’s currency tanked as a result of Trump’s intense import tariffs, aimed at stimulating industrial growth within the US.

In a global market, for every action there is a reaction, and all emerging economies felt the knock-on effect of Turkey’s wobble.

The rand

South Africa’s rand is no exception. Following the Lira crash, the rand recorded its steepest drop in 10 years. While the currency has recovered slightly, the damage done by the drop is already likely to increase petrol prices in September.

Not all the blame for the rand’s poor performance can be put on international shoulders though. Local instability plays a role in investor confidence; the current socioeconomic and political malaise has done little to help the rand recover.

South Africa’s internal issues

The Automobile Association (AA) of South Africa maintains that the issue of rising petrol prices points to a deeper issue of local economic troubles:

“It is important to understand that rising fuel prices are not a petrol issue. They are an economic issue.”

The AA’s CEO, Collins Khumalo, was responding to questions regarding government’s exorbitant fuel levies, which account for more than 30% of the price paid at the pump.

Motorists have long bemoaned government’s finger in the petrol pie, especially that of the Road Accident Fund (RAF), which is practically bankrupt and costing consumers billions of rands every year.

Yet, while scrapping petrol taxes may provide short term relief, Khumalo argues that government would still need to collect that revenue in other ways, saying:

“What we all need to get behind, as a nation, is understanding how government is spending the money from the levies on fuel, and how any wastage in expenditure can be curbed.

In the short-term the scrapping of these levies may reduce the fuel price but government will still have to collect this revenue through other means. Will consumers be happier with these taxes, for instance, the raising of the VAT rate, or an increase to personal income tax rates?”

Other factors including political infighting, the local and global concern regarding land expropriation without compensation, and South Africa teetering on the brink of an official recession all contribute to a burgeoning petrol price.

South African petrol prices in 2020

According to an article published by The Citizen, economists are warning of even greater petrol price increases in the near future. Adriaan Kruger argues that South Africa’s only saving grace up until now has been the coincidental balance between the rand and crude oil prices, saying:

“In the past, we were mostly saved by either a strong rand when the oil price was high, or low oil prices whenever the rand was weak.”

The greatest problem facing South Africa, in terms of petrol prices, is rising crude oil costs and a weakening rand. This, Kruger says, is no longer a theory, but an inevitability:

“Forecasting the oil price is notoriously dangerous, but most analysts seem to take Opec’s latest indications of even higher prices seriously.

A forecast of oil at around $100 per barrel seems reasonable as long as the world economic recovery continues. The New York-based Trading Economics forecasts oil at $97 per barrel at the end of December and at $102 at the end of 2019. It expects a high of $124 in July 2020 and then a slump back to $100.

According to Trading Economics, the rand would end 2019 on R15.72 and continue weakening to around R16.81 at the end of 2020.

These quite conservative estimates for the rand and oil price could see an increase in SA fuel prices to at least R17.30 per litre at the end of this year. And it can increase to above R20 per litre before the end of next year.”

Bear in mind, that these predictions are based off conservative estimates, barring any catastrophic social upheaval. This is where it becomes very tricky for South Africa – the nation is on tenterhooks, dealing with issues of failing state-owned enterprises, uncertainty surrounding land reform, and a general election in 2019.

All these issues hold the propensity for social instability – optimistically, in the face of fierce criticism, the government could, in theory, turn it all around.