Fuel prices set for modest increase on 1 January as rand weakens against dollar

The first fuel price adjust­ment of the year, which will be effect­ed Wednes­day Jan­u­ary 8, 2025, is that gaso­line and diesel are like­ly to become more expen­sive in South Africa. From the lat­est unau­dit­ed data from the CEF, there are under-recov­er­ies for all the grades of gaso­line and diesel dur­ing the price review peri­od used in the cal­cu­la­tion of these fuel prices adjust­ments. Using data from Novem­ber 27, 2024 through Jan­u­ary 2, 2025, the CHEF’s lat­est out­look sug­gest­ed that the retail price of a liter of unlead­ed 95 and unlead­ed 93 gaso­line could increase by about 63 cents and 66 cents, respec­tive­ly. We’ll dis­cuss here the main cause for this rise, its effects on the econ­o­my, and future pre­dic­tions about the prices of fuel in the coun­try.

Fac­tors Con­tribut­ing to the Fuel Price Increase

Since the retail price of diesel is not reg­u­lat­ed, the actu­al price increase will depend on the gas sta­tion used. If one stand were to assume a 15% retail mar­gin, the price increase would be approx­i­mate­ly 84 cents per liter of diesel when fueled at 50 ppm. This would trans­late into a price increase of about R$67 when fuel­ing a dou­ble-cab Toy­ota Hilux or Ford Ranger (both with 80-liter tanks).

• Inter­na­tion­al Crude Oil Prices: oth­er fac­tors that has close link to fuel prices in South Africa include the inter­na­tion­al crude oil prices. In oth­er regions of the globe, oil prices have start­ed ris­ing in the last few months due to some geopol­i­tics and oth­er rea­sons such as the chang­ing pro­duc­tion capac­i­ty of the Orga­ni­za­tion of the Petro­le­um Export­ing Coun­tries. Mar­kets all over the world are equal­ly very close­ly bal­anced on the sup­ply and demand sides and hence the con­stant price vari­a­tion.
• Crude Oil Price Trends: the aver­age Brent Crude price has risen from $72.70 to $72.78 per bar­rel over the review peri­od, and this is the small­est indi­ca­tion of lack of sta­bil­i­ty in the mar­ket. These are fair­ly mod­est increas­es but they do amount to an impor­tant addi­tion to import-depen­dent coun­tries like South Africa if added to oth­er eco­nom­ic fac­tors.
  
• Impact of OPEC Deci­sions: the price increase can be par­tial­ly attrib­uted to the OPEC’s deci­sion to con­tin­ue with the same lev­els of pro­duc­tion as against the excess pro­duc­tion by the non-OPEC pro­duc­ers. Since South Africa imports most of its oil, fuel prices are direct­ly relat­ed to the inter­na­tion­al bench­marks.
  

Rand/US Dol­lar Exchange Rate

One major influ­encer of the fuel prices is the depre­ci­a­tion of the South African rand against the US dol­lar. This is because crude oil and refined petro­le­um prod­ucts impor­ta­tion costs are high since the rand is weak. The fac­tors that influ­ence the per­for­mance of the rand are var­ied, but among them include investor sen­ti­ments, infla­tion rates, as well as some macro­eco­nom­ic poli­cies.

• Exchange Rate Move­ment: the aver­age exchange rate changed from R17.93 to R18.11 per USD over the review peri­od. While the per­cent­age change in the rate of depre­ci­a­tion is low, it makes a huge dif­fer­ence spread over the huge vol­umes of oil import­ed.
• Impact on Fuel Prices: this deval­u­a­tion had a very sig­nif­i­cant impact on the Basic Fuel Prices (BFP) of petrol, diesel, and illu­mi­nat­ing paraf­fin adding between 10.58 c/l and 11.11 c/l to these prod­ucts. The exchange rate move­ments are par­tic­u­lar­ly sen­si­tive in a coun­try like South Africa, where most petro­le­um prod­ucts are import­ed and fuel prices are very sen­si­tive to cur­ren­cy move­ments.
  

Inter­na­tion­al Prod­uct Prices

In oth­er words, retail prices of petrol, diesel, and oth­er petro­le­um prod­ucts are for­mat­ted in ref­er­ence to the cur­rent mar­ket sta­tus of crude oil glob­al­ly. This is a prod­uct that has been pro­duced by pro­cess­ing crude oil, which means prices can be illus­trat­ed with ref­er­ence to the price of crude, the cost of pro­cess­ing, avail­abil­i­ty of the prod­ucts in the glob­al mar­ket and the demands.

• Petrol and Diesel: the rise in the prices of petrol was high­er than in the case of diesel, more on account of sup­ply pres­sures and high demand at var­i­ous spots. Sea­son­al vari­a­tions also influ­ence diesel prices, espe­cial­ly in cold cli­mates when heat­ing oil demand ris­es.
  
• Mid­dle Dis­til­lates: the mid­dle dis­til­lates soft­ened a bit because it was impact­ed with high­er inven­to­ry vol­umes in cool­er des­ti­na­tions. This flat­ten­ing is slight com­fort to those con­sum­ing the mid­stream prod­ucts but this alone will not bal­ance the direc­tion of the over­all advance in fuel.

Slate Levy Adjust­ments

It remained at zero cents per liter because it is con­sid­ered that this slate may help bal­ance over recov­ery and under recov­ery of fuel prices when the cumu­la­tive slate bal­ance is pos­i­tive. Here, changes in dis­crep­an­cies between actu­al costs recov­ered from con­sumers are intend­ed to sta­bi­lize the fuel price by devel­op­ing the slate mech­a­nism.

• Sta­bi­liz­ing Role: that the slate levy is main­tained at zero indi­cates that the slate bal­ance is cumu­la­tive pos­i­tive to date and the cost under pre­vi­ous recov­er­ies more than suf­fi­cient. The sta­bil­i­ty could indeed neu­tral­ize some of the shocks of a sud­den fuel price increase and thus bring pre­dictabil­i­ty to con­sumers and busi­ness­es.
  

Mag­is­te­r­i­al Dis­trict Zones (MDZ) Adjust­ments

With the infra­struc­ture being fixed, DMRE rein­stat­ed the orig­i­nal MDZs. Thus, these zones rep­re­sent prop­er logis­tics costs for fuel pric­ing. These zones will play a great role in estab­lish­ing fuel prices as they fac­tor in the cost of trans­port to oth­er regions.

• Logis­tics Cost Reflec­tion: the var­ied MDZs guar­an­tee that the pump prices of the fuel will accu­rate­ly reflect the cost of deliv­er­ing the fuel to the region. Cor­rec­tion is para­mount in the rur­al regions as the pump price is deter­mined by the trans­port cost.

Detailed Price Adjust­ments

The table below cap­tures all the dif­fer­ent changes in the fuel types as of 1 Jan­u­ary 2025:

The table reflects changes in cents per liter of dif­fer­ent types of fuels that show the impli­ca­tions of the change on inland as well as coastal prices. The com­par­isons of inland and coastal prices sug­gest that the high­er inland price is due to some cost of being so far away from the fuel depots prop­er.

Impli­ca­tions for South African Con­sumers

This may cost a dri­ver of a gaso­line car around R$28 to R$53 more to fill up from an emp­ty tank depend­ing on the type of gaso­line used and the size of the car’s tank. Whole­sale price of 50 ppm diesel may increase about 73 cents per liter while that of 500 ppm could increase by 68 cents per liter. This will also influ­ence the cost of trans­port­ing food, resources, and sup­plies.

• Trans­porta­tion Costs: the effects of high oil prices first come in the trans­porta­tion cost that impacts the trav­el­ling and logis­tics indus­tries. Effects start to spill through the increas­es in price of goods and ser­vices of all man­ner of indus­tries. Trans­port being part and par­cel of the sup­ply chain, most fuel price increas­es are usu­al­ly passed on down the econ­o­my.
  
• Per­son­al Trav­el: the users will see increas­es in the prices of trav­el­ing in per­son­al vehi­cles from work and back home as well as prices of using pub­lic means. The expen­di­tures may stress the already stretched fam­i­ly incomes espe­cial­ly if the house­hold trav­els a longer dis­tance to get to work.
  
• Logis­tics Sec­tor: as far as the logis­tics sec­tor is con­cerned, for deliv­ery com­pa­nies and freight han­dling com­pa­nies, new cost increase is some­thing that will have to be borne but maybe they pass that on to the con­sumer lev­els only. After which the entire mar­ket will start to feel the prick of infla­tion.
  

Infla­tion­ary Pres­sures

Infla­tion emerges because fuel prices are more for trans­port, and that increase trans­fers on to the con­sumers also. Infla­tion dimin­ish­es the pow­er of pur­chas­ing capac­i­ty and waste­ful­ly wastes the same on con­sumer expens­es as well as in the over­all econ­o­my. More seri­ous, infla­tion or due to high lev­els of petro­le­um could dri­ve almost every depart­ment of the econ­o­my from fresh greens and meats to processed man­u­fac­tured items. South Africa would prob­a­bly fare worse as the major­i­ty of her trade is trans­act­ed over large dis­tances.

House­hold Bud­gets

A greater per­cent­age of South Africans’ earn­ings will go into trans­porta­tion, increas­ing the cost. This may even­tu­al­ly lead to dis­pos­able income reduc­tion, affect­ing the amounts spent on lux­u­ry goods. Such costs may become too expen­sive to absorb for many low-income earn­ers with­out hav­ing to cut back in oth­er areas of expen­di­ture. A fam­i­ly may be forced to repri­or­i­tize expen­di­ture by increas­ing funds allo­cat­ed to more essen­tial items like fuel and curb­ing dis­cre­tionary expen­di­tures on leisure or din­ing out activ­i­ties or lux­u­ry pur­chas­es.

Future Out­look

The South African fuel price in the near future will heav­i­ly rely on inter­na­tion­al trends of oil mar­ket, changes in the val­ue of the rand and local eco­nom­ic con­di­tions. Stake­hold­ers who are mon­i­tor­ing such vari­ables can gauge what to expect in the near future.

• Glob­al Mar­ket Dynam­ics: the fuel price in South Africa will remain to be affect­ed by inter­na­tion­al oil prices. Mon­i­tor­ing trends and polit­i­cal hap­pen­ings around the world will keep one in tune with future changes. The glob­al oil mar­ket is so inte­grat­ed that local prices can become casu­al­ties of con­di­tions hun­dreds of thou­sands of miles away. Actu­al­ly, shocks and dis­tur­bances lead­ing to changes in the price of crude oil derive from con­di­tions relat­ing to oil pro­duc­er region con­flict, oil pro­duc­er coun­try sanc­tion by major nations or OPEC nations change out­put plans. 
  
• Cur­ren­cy Exchange Rates: as this will always depend on what has hap­pened against the US dol­lar it will be a cen­tral indi­ca­tor. Even a stronger rand would reduce some of the upward pres­sures on fuel prices, while fur­ther loss would inten­si­fy the sit­u­a­tion. There are many fac­tors that tend to influ­ence the exchange rate, such as eco­nom­ic per­for­mance in South Africa, investor sen­ti­ment, and world mar­ket devel­op­ments. For exam­ple, inter­est rates or fis­cal pack­age that is to be imple­ment­ed will be tak­en into account regard­ing the rand’s val­ue. 
  
• Gov­ern­ment Poli­cies: levies and tax­es on fuel have to be fac­tored into the gov­ern­ment poli­cies while com­ing up with the final pump prices. Depend­ing on the for­mu­la­tion, reg­u­la­to­ry poli­cies and fis­cal pol­i­cy mea­sures could either bur­den or ben­e­fit the con­sumers. For exam­ple, poli­cies on ener­gy will, over time, encour­age use of alter­na­tive sources of ener­gy and more effi­cien­cy to lim­it reliance on import­ed oil and fuel. 
  

Con­clu­sion

The slight increase in fuel prices set for 1 Jan­u­ary 2025 reveals a com­plex nexus of glob­al mar­ket dynam­ics and domes­tic eco­nom­ic fac­tors. Although fuel prices can be a night­mare to South African con­sumers, that is not all; they could be man­aged in the face of fuel-sav­ing mea­sures and get­ting onto mar­ket trends. The pol­i­cy­mak­ers and con­sumers should there­fore mon­i­tor and adapt as the coun­try moves for­ward. Want to keep learn­ing about finan­cial orga­ni­za­tion? Check out our arti­cle on finan­cial strate­gies and start trans­form­ing your rela­tion­ship with mon­ey today!