Petrol, diesel prices: First official estimate after oil crash shows you can expect deep cuts
- Following the oil price crash, the Central Energy Fund currently estimates a drop of almost 70c/litre in 93 petrol in the first week of April, while diesel could be cut by 90c .
- But new fuel levies, which come into effect at the start of April, will take a big bite out of these cuts.
- Also, oil prices are starting to head higher, and the rand is volatile.
- For more stories, go to Business Insider's home page.
Following the oil price crash on Monday, the Central Energy Fund (CEF) released its first estimate of how fuel prices could fall in the first week of April.
Every month, the department of energy fixes the petrol price based on the price of Brent crude oil and the rand/dollar exchange rate. The CEF releases a daily calculation, which gives an indication of where the petrol and diesel prices are heading.
Based on Monday's oil price (which tanked by 20%) and rand/dollar rate, the CEF calculates that a litre of 95 unleaded petrol should cost around 78c less, while 93 should be 69c lower and a litre diesel could be cut by between 90c and 91c.
However, the fuel price cuts may not end up quite as steep.
Firstly, new fuel taxes - of 25c a litre - are coming into effect at the start of April, which will already take a chunk out of the CEF estimate.
In last month’s Budget, finance minister Tito Mboweni announced that the fuel levy would increase by 16c and the levy for the nearly insolvent Road Accident Fund (RAF) – which the Treasury said is the state’s second-largest liability after Eskom – will increase by 9c from the beginning of April.
Secondly, the oil price started to show signs of life on Tuesday morning. It rose almost 7% to around $35 a barrel.
The oil price crashed by more than 30% on Sunday night after Saudi Arabia launched a price war following Russia's refusal to cut its output. The oil cartel Opec wanted to put a squeeze on supply in the market by cutting production - but Russia remained defiant. In reaction, Saudi Arabia lowered its prices by up to $8 a barrel – an unprecedented move which sent the market into a tailspin. The oil priced suffered its biggest loss since the Gulf War in 1991.
South Africa imports the vast majority of its fuel, and is therefore completely dependent on the oil price. In January alone, South Africa imported more than R16 billion in oil – almost 16% of total imports.
Then, the rand could still throw a spanner in the works.
While the currency briefly touched R16.97/$ on Sunday night, it has recovered to R15.87/$ by Monday.
"The rand remains volatile and seeing swings both ways at the moment," says Layton Beard, spokesperson of the Automobile Association of South Africa.
"If the oil price remains flat, and the rand stays in a narrow band under R16/dollar then it could be good news (for the fuel prices) in April. But it’s still early days and we’ll have to wait to see what the averages tell us in the days ahead."
Given that Moody’s may cut South Africa to “junk” as early as this month, and the Reserve Bank could lower interest rates next week (which makes the rand less attractive to foreign investors), more rand volatility is expected.
Compiled by Helena Wasserman
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