Johannesburg - With 2017 only a few days old, South African motorists have already felt the pinch of rising fuel prices but, according to local economists, the increases were not likely to persist throughout the year.
The Department of Energy last week dampened the festive cheer when it announced petrol price increases of between 48c and 50c a litre. The diesel price rose by up to 39c a litre, while illuminating paraffin prices went up by 43c a litre.
This has raised fears that already hard-pressed consumers could be on the receiving end of more fuel price hikes, especially given the expected increase in global oil prices.
Bank of America Merrill Lynch’s Commodity and Derivatives Strategist, Francisco Blanch, last month predicted that Brent Crude would rise to a peak of $70 (R954) per barrel this year. Yesterday afternoon Brent Crude oil was trading at $56.15 a barrel.
Efficient Group economist Francois Stofberg said yesterday that the increases were unlikely to be a trend throughout this year. “We expect to see further increases over the next quarter, as local petrol prices adjust to the oil price However, towards the third quarter of 2017 we expect a strong rand (R13/$1) should help to curb local petrol prices,” said Stofberg. He said the oil prices were likely to peak at $66 a barrel, but would average at $62.
In a note last Thursday, Econometrix attributed Wednesday’s fuel price hike to a rise in the international price of crude following an agreement between Opec and non-Opec members to cut production by about 2 percent this year.
“Fears abound that petrol prices will keep increasing through 2017. However, this is by no means certain. Based on previous experience, there is no guarantee that the reduction in output will prove to be sustained,” it said.
Econometrix did not rule out a decline in the oil prices in the face of possible breaches to reduced output quotas and the possibility of US shale gas producers increasing output. It said certain Opec members such as Libya and Nigeria were not subjected to the quota reductions.
Gerrit van Rooyen, an economist at NKC African Economics, said on Monday the petrol prices increased last year mainly due to a rebound in international crude oil prices as major petroleum exporters struck deals to limit their daily output, while taxes and levies also added almost 36c per litre to local pump prices.
“However, a strengthening of the rand since the start of 2016 mitigated petrol price increases. Looking at 2017, we expect petrol prices to rise further due to a gradual weakening in the rand combined with another hefty increase in fuel tax. In contrast to 2016, we expect the Brent Crude oil price to stabilise in 2017, reaching a peak in the first quarter and averaging $52/bbl for the year.
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“We are sceptical about whether the agreed production cuts by Opec and non-Opec countries will be meaningful to reduce crude inventories and shore up prices.
“We are concerned about slowing demand from China and India and expect fragmentation within Opec to resurface in the months ahead,” said Van Rooyen.
He said NKC expected oil prices to subside slightly from current levels. He said the basic fuel price was likely to come under pressure because of the rand weakening to about R15 to the dollar by year-end.
“The main drivers behind the weakening of the rand is that continued political instability and anaemic growth will inevitably compel the rating agencies to downgrade South Africa non-investment grade and that the expected resumption of the US interest tightening cycle will hurt emerging market sentiment. Moreover, the National Treasury is looking for an additional R28 billion in tax revenues in the next fiscal year and a sizeable increase in fuel tax will no doubt be on the cards,” he said.