Loving Life TV

Prepare for more fuel-price painHigher oil prices and weak rand to push prices to new records this year. Add load shedding, and the cost to produce and buy food goes up too.

Home Forums A SECURITY AND NEWS FORUM Prepare for more fuel-price painHigher oil prices and weak rand to push prices to new records this year. Add load shedding, and the cost to produce and buy food goes up too.

  • This topic is empty.
Viewing 1 post (of 1 total)
  • Author
  • #422736
    Nat Quinn

    Motorists are facing another fuel price hike on Wednesday that will increase the price of petrol and diesel to only a few cents from the record highs of June 2022.

    Of significance is that the records of June 2022 were the result of an extraordinary rise in oil prices when the benchmark Brent crude price spiked to nearly $140 per barrel, soon after Russia’s invasion of Ukraine.
    Currently, oil prices are merely doing their seasonal uptick at the start of the Northern Hemisphere’s winter and sitting at a ‘reasonable’ $95 per barrel.
    While the war in Ukraine is still a concern – leading to lower oil and gas supplies – the weak rand is a much bigger problem for SA motorists. In July last year, the rand fluctuated between R16 and R17 to the dollar.
    The exchange rate has weakened since then, with the rand sitting at nearly R19 per dollar for the past few weeks and breaching the R19 mark in early trade on Monday morning.
    The current weak rand and pricier oil equates to a rand oil price of R1 800 per barrel compared to R1 850 in June 2022.
    Price pressures
    When the Department of Mineral Resources and Energy announced the fuel price for September 2023, its minister Gwede Mantashe noted that the average exchange rate for the period 28 July to 31 August was R18.67 to the dollar and the average Brent crude oil price was $84.78 per barrel.
    This put the average rand oil price at R1 582 per barrel. Current prices are nearly 14% higher than in June last year.
    Mantashe also noted that the average international product prices of petrol, diesel, illuminating paraffin and gas increased during the period under review – for other reasons, but this also impacts prices in SA.
    Petrol prices increased internationally as a result of low inventories and refinery outages. This affected the production of blending components used in summer grade petrol, making it more expensive to produce.
    Diesel and paraffin prices increased because of lower shipments of crude oil from Russia (which is rich in ‘middle distillates’), as well as rising demand for middle distillates ahead of the winter season in the Northern Hemisphere. Gas increased because of higher prices of propane and butane worldwide.
    Historic highs on the horizon
    The prices of petrol and diesel, as well as paraffin and gas, are expected to increase to close to historic highs this week.
    The Automobile Association (AA) warned in a recent report that South Africans should brace for more fuel price pain this month, based on unaudited data from the Central Energy Fund (CEF).
    “Current data is indicating an increase to petrol of around R1.20 per litre and an increase to the wholesale price of diesel by as much as R2 per litre.
    Illuminating paraffin is also set for another increase with the data currently showing an under recovery of R1.84 per litre,” says the AA.
    “Should these significant increases materialise, they will push fuel prices to levels last seen in July last year, stretching the personal finances of South Africans even further.
    “Higher fuel prices will invariably lead to higher prices at the till, and which will be a blow to many who are already experiencing financial distress.”
    According to the CEF’s data, higher international oil prices are the main driver behind the expected increase. “The oil price has climbed substantially since August, mainly on the back of reduced output by major oil producing nations,” it says.
    “The CEF’s data is showing that in the case of petrol, up to 80% of the increase can be attributed to higher oil prices while these prices are responsible for up to 86% of the expected climb [in] the price of diesel,” according to the AA.
    The preliminary data showed that the exchange rate did not have a big effect then, but things have since changed.
    Comments by Arthur Kamp, economist at Sanlam, create the impression that oil prices are bound to stay higher for longer. He says the extension of Saudi Arabia’s supply cuts alongside Russia’s reduction in exports for an additional three months have contributed to the oil price rising to over $90 per barrel.
    “Overall, the OPEC+ alliance is planning to hold back more than 4 million barrels per day from the market, which is the highest level of cuts outside of recessions over the last two decades. Of note, Saudi Arabia’s crude output is the lowest (except during the Covid-19 pandemic) in over a decade.
    “These cuts have been announced despite a recent rise in global oil demand,” says Kamp.
    “The recovery in personal mobility in China (after three years of Covid restrictions) was more than enough to offset demand weakness in the property sector and it is estimated that China will account for more than half of global oil demand growth this year.”
    While Kamp notes that it is very difficult to forecast the oil price with a degree of confidence, he expects it to remain around current levels for the rest of the year. “Although we have had a bullish view on oil prices for the second half of 2023, we think it is likely to be capped at around $100 per barrel.
    “Global oil demand has increased in recent months with a recovery in demand for mobility fuels (gasoline, diesel, jet fuel) and the re-opening of China’s economy. Seasonally, August is normally the highest oil demand month globally and normal seasonal patterns suggest the pace of demand for mobility fuels like gasoline, jet fuel and diesel should decelerate as we move into a Northern hemisphere winter.
    “The consensus view is that within OPEC, Saudi Arabia’s crude production will remain capped, increasing in early 2024. It is also expected that Russia exports will rise again towards year end.”
    Kamp warns however that a major geopolitical event, stronger than usual winter demand and/or further announcements of extended production cuts could see oil prices higher than $100 by year end.
    “All of these are possible,” he says.
    “At the [current] exchange [rate] and crude at $95, the petrol price would rise to approximately R26 per litre by December 2023, the highest level since July 2022,” says Kamp.
    The cost to fill a tank …
    The pain of filling a car’s fuel tank surpasses that of a dentist’s drill. Owners of a Mercedes-Benz C180 will, from Wednesday, have to pay close to R1 700  to fill its 66 litre tank. Five years ago, they paid just more than R1 000, and 10 years ago R875.
    Filling the 400 litre diesel tank of a Mercedes-Benz Actros truck – SA’s most popular truck – will cost the owner very close to R 8 800 from this week. The truck would have cost less than R5 800 to fill in 2018 to haul 12 tons of food from a warehouse to a retailer.
    As far as food production goes, a John Deere 8310R tractor burns 5.5 litres of diesel per hour, according to the manufacturer’s specifications. That is set to jump from R55 per hour in September 2015 to R120 per hour this week.
    Food production … and prices
    Paul Makube, senior agricultural economist at FNB Agri Business, says the expected big increase in the diesel price reintroduces cost pressures at the onset of the new agriculture season.
    He says the agriculture producer price index (PPI) decelerated in 2023 after increasing by 15% in 2022, but recent increases in diesel prices will add to cost pressures across the agriculture value chain.
    “Crude oil prices seem to be on an uptrend lately, exceeding $90 per barrel, due to the tightening global supply outlook on the back of the Saudi Arabian and Russian product cuts.
    “For the agriculture sector, this is obviously bad news especially that this comes at the onset of the new summer crop season with preparation for planting in the eastern areas about to begin.
    “The grain industry, which breathed a sigh of relief with moderation in fertiliser prices, now faces higher costs for planting as fuel accounts for about 10% of the grain and oilseed variable costs,” says Makube.
    “For the livestock and horticulture sector, fuel is critical for transportation of produce to markets, and recently a huge input in operations and cold storage followed the onset of load shedding.
    “With load shedding reaching Stage 6, farmers will be forced to run generators for extended periods to maintain the cold storage.”

    He adds that higher fuel prices may worsen consumer inflation, which has tracked back within the South African Reserve Bank’s target range of 3% to 6%.


    source:Prepare for more fuel-price pain – Moneyweb

Viewing 1 post (of 1 total)
  • You must be logged in to reply to this topic.