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Next Wednesday the petrol price will not increase, although some expect that it may decrease by a few cents. That’s about as good as news about the petrol price can be. But is the price of a litre in South Africa likely to decrease significantly at any point? No.
The factors that determine the petrol price are the interaction of global demand and supply for crude oil, government taxes and levies, and the rand/dollar exchange rate. A possible source of relief here could be an appreciation of the rand.
However, even a substantial appreciation of the rand relative to the dollar would not bring about a major change in the price of petrol. Only R8 (59.04 percent) of the R13.55 per litre for 95 unleaded in Gauteng is determined by factors outside South Africa. This contribution, known as the basic fuel price, captures the costs of buying fuel in dollars from distribution centres in the Mediterranean, the Persian Gulf and Singapore. It includes the cost of transport to South Africa, insurance, ocean loss, harbour fees and coastal storage.
Even in the extreme case that the rand were to double its value relative to the dollar and appreciate to R5 a dollar, and the halving of import costs were to be passed on to the consumer, the petrol price would decrease by a maximum of R4 a litre. Even in this almost impossible scenario, we’d still pay nearly R10 a litre. Factoring in generous but realistic rand appreciation, the exchange rate can only effect the petrol price by R1 or R2 a litre, at most.
While a small relief, of all the determinants of the petrol price, this is the only one that could offer a positive change. While the crude oil price does fluctuate, it is at the same price it was two and a half years ago. With increasing global demand faced by a slowing increase in supply, long-term relief in oil prices is off the cards. A significant decrease in oil prices will only come about when alternative energy sources are used on a scale large enough to compete with the global demand for oil.
The remaining R5.55 a litre (40.08 percent) is accounted for by the margins for dealers (99c a litre), and taxes and levies (R4.56 a litre). Levies include the Road Accident Fund (96c a litre), the fuel levy (R2.13 a litre), and the slate levy (18c a litre).
The slate levy is highly volatile and captures the difference between the basic fuel price calculated daily, and the fuel price reflected in the current petrol price, which remains fixed for a month. The difference is averaged over the month’s review period and, if it is found that the basic fuel price being used is too high, the slate levy will decrease or turn negative.
The petrol price decreases expected to be announced tomorrow and put into effect next Wednesday for the month of September are a result of a decrease in the slate levy to compensate for an overestimated basic fuel price for the month of August.
Apart from the slate levy, it is unlikely that any other tax or levy will be decreased in the short to medium term. Where tax relief has been offered, the government has usually done so on personal income, and in an environment of increasing expenditure demands and a growing budget deficit, it would be a surprise to see fuel levies come down.
High petrol prices are something we have to get used to. The only factor that can help you have any significant effect on your monthly fuel bill is your consumption behaviour.
* Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter @PierreHeistein