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Petrol price set to go lower

Commodities

Johannesburg - The day after the budget (February 23) the press and financial markets were quite negative around the 39 cents per litre total tax increase (30c tax levy and 9c RAF levy) announced by the Minister of Finance Pravin Gorddhan.

At the end of February the Central Energy Fund announced that the petrol price was 8c over recovered for the period January 27 to February 24, that for diesel by 2c per litre. It then announced that the prices for petrol and diesel were to be lowered by those amounts at the beginning of March.

Since February 24, however, the rand/dollar exchange rate managed to move quite stable between levels of R12.92/$ and R13.20/$, currently trading on R12.71/$.

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A taxi driver counts some of his cash in order to pay for fuel as a pump attendant fills his vehicle with petrol in anticipation of the fuel price increase. According to the writer's calculation, the fuel price should come down in April. Photo: Ihsaan Haffejee

During the same time the international Brent oil price came down considerably from levels beyond $56 (R711.65) per barrel to its current level of around $52 per barrel.

As a result up to March 14, the price for 95 octane petrol was over recovered by 51c per litre, the price of 93 octane petrol by 49c per litre and that for diesel 28c per litre.

If the current rand/$ exchange rate continues to trade between the levels of R13/$ and R13.15/$ and the price for Brent oil stays lower than $53 per barrel till April 5, the price for 95 octane petrol can be lowered by at least 51c per litre.

Read also: #Budget2017: Fuel could attract VAT

If one adds the price decrease of 8c per litre at the beginning of March, it means a lower price of at least 59c per litre since the day of the budget.

In this sense if the total levy increase of 39c per litre is then introduced, the consumer may pay 20c per litre less coming April 5.

In the same manner the adjusted price for 93 octane petrol after the levy since February 22 may be 18c per litre lower and that of diesel an increase of only 9c per litre.

Both the rand/$ exchange rate and the international Brent oil price per barrel over the next two weeks will be crucial in the calculation of the final fuel prices applicable from April 5.

If the petrol price is due to come down by 15c to 25c per litre after the increased fuel levies during the beginning of April, it will have far reaching effects on the inflation rate. Together with the expectations that food prices will either come down or at least stabilise at their current levels during the rest of the year the changes remain quite good that the Monetary Policy Committee may lower interest rates during the fourth quarter of 2017.

Dr Chris Harmse is chief economist at Rebalance Fund Managers.

BUSINESS REPORT

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