By Tash Reddy and Zukile Majova
Drivers can brace themselves for a price of R7,50 a litre for petrol by December or early next year if the price of Brent crude oil continues its relentless rise. Since the beginning of the year it has risen by 65,8 percent and is now trading at $62,40 a barrel, but is said to be fast approaching the $70 mark.
Technical analyst Moxima Gama of Noah Financial Innovations in Sandton, who studies prices through the use of graphs, oscillators and other indicators, revealed South Africans could be in for a bleak future as the prices of fuel and Brent crude oil keep rising.
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The South African government is so worried about the situation that the Department of Mineral and Energy Affairs Chief Director of Communications, Yvonne Mfolo, said the department had put together a task team of economists from the Reserve Bank, Trade and Industry and the private sector to investigate options the government could use to subsidise the cost of fuel.
| 'In January we were paying approximately R4,22 a litre for petrol; now we are paying R5,66 a litre' |
Avhapfani Tshifularo, a pricing and taxation adviser at the South African Petroleum Industry Association (Sapia), said oil company revenues were running at a R2-billion loss for the year so far, because they could only raise the price of fuel at garage pumps in South Africa a month after the international price changed.
This meant they were operating at an accumulated loss, particularly because there had been so many and such rapid increases.
Another expert who is alarmed is former editor of The Rand Daily Mail and respected commentator Allister Sparks, who is predicting crude oil to go to $100 a barrel.
He chillingly concludes a recently-published article by saying what is needed is a national wake-up call to the fact that the oil crisis is coming. He says it is going to be the major concern of the 21st century.
Gama says the increase in the crude oil price has been caused by a number of factors and since the beginning of the year it has surged by about 65,8 percent.
According to Gama, Brent crude is expected to continue trading upwards in the medium to long-term.
Gama said: "Trading up to that level will cause quite a stir as petrol prices will definitely be affected. In January we were paying approximately R4,22 a litre for petrol; now we are paying R5,66 a litre.
"The reasons behind the increases have been a huge demand due to the change of seasons, a shut-down of certain refineries in the US which have caused delays, and political tension between the US and Iran, which pumps four million barrels daily and is the second-largest producer in Opec."
Added Gama: "Consumers are paying the highest price ever for petrol and this is with crude oil trading at the $60 a barrel level. It has yet to adjust for the latest oil price of $66 a barrel."
For consumers, the increase will affect all facets of everyday life. Future petrol or crude oil price increases, said Gama, would have an impact on overall daily activities.
"Generally it will affect every-thing, from the house you live in to the shoes you wear, with food prices being affected the most.
"According to statistics the price of bread increases by 2,5c with every R1,80 rise in the diesel price.
"The worst case scenario in the future, if Brent crude trades above the $105 per barrel level, means inflation will surge, pushing us out of the six percent target boundary, and spurring an interest rate hike which will consequently slow overall economic growth."
Consumers are warned to take precautionary measures to ensure further oil and fuel hikes don't leave them out of pocket.
Gama suggested people re-adjust their fuel consumption allowance when preparing their budget for the month to cater for surprise hikes in petrol.
"If you are in the market for a car look at more fuel-efficient options and consider car pools, which are cost effective," she said.
And how will the interest rates be affected?
"Because a hike in crude oil is inflationary, it will affect interest rates.
"The Reserve Bank is trying to keep inflation within the three to six percent range band and with these high oil prices inflation will inch higher, threatening the upper boundary.
On Thursday last week Reserve Bank governor Tito Mboweni announced unchanged rates. He also said they had built in a safeguard in inflation outlook which could still lead to an interest rate cut if crude oil does not breach the $70 mark.
"Given that crude oil prices are expected to continue surging, the possibility of further cuts is low; and we may face the prospect of hikes."
Mfolo said that in March the department subsidised the price of petrol by using funds from the Equalisation Fund but they had found this was not sustainable.
She said the reserves in the Equalisation Fund, whose funds are drawn from each litre of fuel sold in South Africa, would be exhausted in less than a month if the government were to decide to subsidise fuel.
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