Increase in petrol price is likely as oil rises

Motorists may have to pay more for petrol over the next two months after having enjoyed six months of consecutive price cuts.

The rand has been firmer but the benefits have been slightly cancelled out by rising oil prices. Official data is pointing to a possible petrol price increase of 11c/l. This would be the first increase since last August.

“Unfortunately, I think the petrol price benefit will start to reverse next month,” said Stanlib chief economist Kevin Lings. The petrol price has fallen from R14.33c/l in August to R10.31 — with the biggest decline being a R1.23c/l drop last month.

Fuel prices are a function of several factors including oil prices and the rand exchange rate. While the rand has been firmer, crude oil prices rose by as much as $1 on Friday to $58 a barrel, continuing a rebound from near six-year lows plumbed last week.

Crude oil prices closed more than 4% higher on Thursday as conflict in oil producer Libya and an expected boost in demand following China’s central bank easing helped the market rebound.

Mr Lings said that although the oil price would drift a little higher in coming months, it would probably end the year at about $60 a barrel and not recover to the $110 a barrel seen in the middle of last year.

KADD Capital economist Elize Kruger said that even if there was a sizeable increase in the fuel price of, for example, 78c/l next month on the assumption of a 20% increase in the oil price, there would still be a benefit “left over” compared to a few months ago. She said this was because the cumulative fuel price cuts since August last year had amounted to more than R4/l.

Macquarie SA economist Elna Moolman shared Ms Kruger’s views, saying that even if fuel prices rose next month, they would “still be meaningfully lower” than a year ago. “In other words, this would still be supporting the consumer, just to a lesser extent than before.”

Even if petrol prices were to rise, this would not materially change the inflation outlook — which for now is for a lower inflation average this year compared to last year.

The Reserve Bank bases its interest rate decisions on how inflation will perform, among other factors. It was an improved outlook that allowed the Bank to leave rates unchanged last month.

It was likely that the full effect of oil prices being lower than last year has yet to fully filter through the economy, said Capital Economics’ John Ashbourne. He forecast inflation to slow over the first half and average about 4% for this year.

“This is well within the Reserve Bank’s 3%-6% target, which is one key reason why we predict that the bank will hold interest rates at 5.75% until 2016,” he said.

If fuel prices rise next month, they could be followed by yet another rise in April after fuel levy and Road Accident Fund levy increases, expected to be announced in the national budget on February 25, become effective.

The low oil price has given Finance Minister Nhlanhla Nene more room to manoeuvre from a tax collection perspective, according to Ashburton Investments strategist Mark Appleton. His assumption was that an additional 60c/l fuel levy would go a long way to satisfying tax requirements. “This implies that he does not necessarily have to burden the tax payer with increased taxes,” he said. ­–Reuters