Record fuel price hikes expected in September

Motorists should brace for huge fuel hikes in September when the mineral resources and energy department adjusts fuel prices next Wednesday.

Commenting on unaudited data from the Central Energy Fund (CEF), the Automobile Association (AA) said the hikes in petrol prices will be the highest since July last year, while the increases in diesel prices will be record hikes.

“According to the CEF’s data, the price of petrol is expected to climb by between R1.59l for ULP93 and R1.65/l for ULP95. The wholesale price of diesel is expected to increase by R2.85/l.

“Considering these potential increases, the price of a litre of ULP95 inland will rise from R22.83 to R24.48/l while the price of ULP93 will increase from R22.43/l to R24.02/l. These prices are in line with prices last seen in August last year but not at the record highs seen in July 2022,” the AA said.

In the case of diesel, the hikes will push the suggested wholesale price from R20.21/l to R23.06/l, the highest since December last year.

Illuminating paraffin prices are also slated to increase significantly by R2.80/l, pushing the cost to R17.43/l inland and R16.50/l at the coast.

The expected increases are largely driven by higher international oil prices which have risen on the back of slow demand and decreased output. Reuters reported this week that analysts expect Saudi Arabia, the world’s biggest oil exporter, to extend its voluntary output cut into October, keeping oil supply tight and prices high.

According to the CEF’s data, higher international oil prices are contributing between 80% and 88% to the expected increases with the weaker rand/dollar exchange rate contributing the rest.

“While the rand has weakened on average against the greenback in August, it’s not a major contributor to the expected increases — that falls squarely on rising international oil prices,” said the AA.

The increases — especially diesel — will have negative consequences for consumers as higher input costs will be recovered through higher prices at the till.

“Motorists will feel the pinch in higher prices at the pumps but consumers across the board can expect higher prices for goods and services.

“In this environment we reiterate our advice to motorists that they should keep their vehicles in good mechanical condition and their tyres inflated according to manufacturer’s specifications to ensure optimal fuel usage.”

The association welcomed the publication of a study by two economists linked to the Reserve Bank calling on the government to lower fuel prices. The two economists, Zaakirah Ismail and Christopher Wood, identified four ways to improve price-setting mechanisms. 

“In their review, the economists echo much of the AA’s views on the issue of fuel pricing, including calling for a review of the methodology for calculating retail margins and a reconsideration of proposals “to move the petrol price to a maximum (rather than regulated) price”, said the AA.

The report also calls for a review of the methodology of reviewing inland transport costs and the updating of “several outdated elements of the basic fuel price calculation”.

The AA has also called for urgent intervention in the Road Accident Fund (RAF) and for an immediate review of the RAF levy which comprises R2.18 on every litre of petrol and diesel sold.

“The RAF secures about R42bn in funding annually through the RAF levy on fuel, but citizens derive little benefit from their contributions,” the AA said.