Reuters

Petrol prices increased by 71c a litre inland, and 66c at the coast, largely because of fuel and Road Accident Fund levies announced in Februarys Budget, and also because of instability in international oil prices.

Brent crude oil went over $120 (R928) a barrel on Friday, the highest since May last year. The impact of higher crude prices, along with a volatile rand, could push the price of petrol in Gauteng to more than R11 next month, for the first time, according to Tony Twine, the senior economist at Econometrix.

The price of petrol at the pump in Gauteng is now R10.95 a litre, after a 34c a litre hike at the beginning of this month. The price is higher than the peak of R10.70 in July 2008, when Brent crude reached $147.

Twine predicted a 25c increase next month.

Domestic prices are based on a basket of off-shore products and adjusted each month, in line with shifts in the basket of prices. The average daily under-recovery – the shortfall between the basket prices and the current price – is running at 14.6c so far this month.

But he noted that the most recent daily under-recovery was 40c – a pointer to future price pressures.

Changes to the domestic petrol price depend on shifts in both oil prices and the rand exchange rate.

Benchmark Brent has been rising since its recent low of $109.8 on January 25. Twine said the run-up over $120 was due to a variety of factors.

These included the stand-off between Iran and the Western powers, which could disrupt supply from that country – the world’s second-largest exporter; the extremely cold European winter which had increased demand for heating fuel; and the possibility that North Sea supplies would be disrupted next month due to maintenance.

Walter de Wet, the head of commodities research at Standard Bank, said oil from South Sudan was out of the market and Libyan oil had only started coming back in. He said Libya was nowhere near its previous output levels.

However, he said the current price of Brent was too high to be sustainable and predicted it would drop back to $110 by the end of the first quarter.

As to the rand, the exchange rate has been fluctuating as global investors alternate between risk aversion, which sucks money out of emerging markets, and risk appetite, which stimulates the inward flows. The currency weakened from R7.5 to the dollar on February 3 to about R7.7 at the end of last week.

The prolonged negotiations between Greece and its neighbours about a second rescue package have created great uncertainty in financial markets. If Greece fails to get e130 billion (R1.3 trillion), it will not be able to meet its commitments next month – including a debt repayment worth e14.5bn, according to Bloomberg. The fall-out from a disorderly default would threaten the existence of the euro zone and generate massive risk aversion.

Emerging market currencies, including the rand, would take a hit – with consequences for the price of petrol. There would be a knock-on effect on inflation generally.

Petrol inflation in December was 26.4 percent and, along with electricity prices, has pushed overall inflation above the Reserve Bank’s 3 percent to 6 percent target range. - Business Report