Cape Town - The fuel price could rocket, at least in the short term, as the world comes to terms with the weekend attack on key oil installations in Saudi Arabia.
The weekend drone attack on two major oil facilities in the desert kingdom reportedly knocked out 5% of the global oil production, leading to a price surge on crude, which on Monday rose by at least 19%.
The effect of the attacks has begun to feed into the South African fuel price picture. According to the Automobile Association, diesel, already set for an increase by last Friday, has swung further into the red, with an increase of 13c a litre now forecast.
Illuminating paraffin has followed suit, with an 8c rise on the cards.
All grades of petrol were showing a decrease on Friday, but this has
narrowed, from 11c to 5c in the case of 95 octane, and 25 to 20c for 93 octane.
While recent events of a similar nature have not had a long-term
effect on the oil price, the AA said: “Drone strikes on Saudi Arabia’s
Abqaiq oil refinery have wreaked havoc on world oil markets and made the forecasting of the oil price
more difficult.”
At the same time, however, analysts point out that the fuel markets have recently seemed to adjust fairly easily to political instability in Venezuela and on/off tensions between the US and Iran over the last two years, even though, combined, the situations lead to a loss of over two million barrels a day.
Hugo Pienaar from Stellenbosch University’s Bureau for Economic Research said: “Both the US and Saudi Arabia have indicated that they will make up the shortage through tapping oil reserves.”
“So at this stage we are not looking at a 1973-style crisis. At $68/barrel as we speak, the spot price of Brent crude oil was about 12% higher than on
Friday. During the 1973 oil embargo, the price increased by 400%,” said Pienaar.
He said this situation suggested that oil traders did not expect the price to remain at the current highs but that “it may take weeks, if not months, to restore the damaged oil processing facility”.
Sanisha Packirisamy, an economist at Momentum Investments, said: “The bulk of South Africa’s oil imports have come from Saudi Arabia (42%), Nigeria (34%) and Angola (13%)... during the first quarter of 2019.”
She said that while South Africa had in the past imported as much as 35% of its oil from Iran, “pressure from the US many years back forced South Africa to cut back significantly on its oil imports from Iran”.
“South Africa’s heavy reliance on Saudi Arabian oil imports could, however, negatively affect the price of fuel in South Africa, given the significant dent to Saudi’s oil supplies following the attack.”
Asked about a worst case scenario at the petrol pumps, Pienaar said: “The worst case would indeed be a war in the Middle East that drives the oil price even higher and forces it to stay at the more elevated levels, as well as a weaker rand exchange rate.” However, he said: “The likelihood of a war is not particularly high as the damage to all concerned may simply be too high.”
If, against all odds, war did break out, Pienaar said: “Depending on how long the conflict lasts, this would mean significantly higher domestic SA fuel prices, especially if the rand exchange rate were to weaken in tandem with a higher oil price.”
The AA said: “South Africa’s heavy reliance on petroleum imports is worrying.
“In an era where many millions of barrels of production capacity could be removed in an instant, the country cannot ignore the risk of fuel shortages or crippling price increases which are disconnected from normal supply-and-demand cycles.”
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