Major fuel price hikes expected in September

Motorists should brace for huge fuel hikes in September when the department of mineral resources and energy adjusts fuel prices next Wednesday.

Commenting on unaudited data from the CEF, the Automobile Association (AA) says the hikes to petrol prices will be the highest since July 2022, while the increases to diesel prices will be record hikes.

“According to the CEF’s data, the price of petrol is expected to climb by between R1.59/l for ULP93 and R1.65/l for ULP95. The wholesale price of diesel is expected to increase by a whopping R2.85/l.

Considering these potential increases, the price of a litre of ULP95 inland will rise from R22.83 to R24.48/l while the price of ULP93 will increase from R22.43/l to R24.02/l. Both these prices are in line with prices last seen in August 2022 but not at the record highs seen in July 2022, notes the AA.

In the case of diesel, the hikes will push the suggested wholesale cost of this fuel from its current R20.21/l to R23.06/l, the highest it has been since December 2022. Illuminating paraffin prices are also slated to increase significantly by as much as R2.80/l, pushing the cost of this fuel to R17.43/l inland and R16.50/l at the coast.

The expected increases are largely being driven by higher international oil prices, which have risen as a result of slow demand and decreased output. Reuters reported this week that analysts expect Saudi Arabia, the world’s biggest oil exporter, to extend its voluntary output cut into October, keeping oil supply tight and prices high.

According to the CEF’s data, higher international oil prices are contributing between 80% and 88% to the expected increases, with the weaker rand-dollar exchange rate contributing the rest.

“While the rand has weakened on average against the Greenback in August, it’s not a major contributor to the expected increases – that falls squarely on rising international oil prices,” says the AA.

The Association says the increases to the fuel prices — especially to diesel — will have negative consequences for all consumers as higher input costs will be recovered through higher prices at the till.

“Motorists will certainly feel the pinch in terms of higher prices at the pumps but consumers across the board can expect higher prices to all goods and services because of these hikes. In this environment we reiterate our advice to motorists that they should keep their vehicles in good mechanical condition and their tyres inflated according to manufacturer’s specifications to ensure optimal fuel usage.”

The association welcomed the publication of a study by two economists linked to the Reserve Bank calling on the government to lower fuel prices. The two economists, Zaakirah Ismail and Christopher Wood, identify four ways in which to improve price-setting mechanisms. 

“In their review, the economists echo much of the AA’s views on the issue of fuel pricing, including calling for a review of the methodology for calculating retail margins and a reconsideration of proposals “to move the petrol price to a maximum (rather than regulated) price,” the AA said.

The report also calls for a review of the methodology of reviewing inland transport costs and the updating of “several outdated elements of the basic fuel price calculation”.

The AA has also called for urgent intervention in the Road Accident Fund and for an immediate review of the RAF levy, which currently comprises R2.18 of every litre of petrol and diesel sold in the country.

“The RAF secures around R42bn in funding annually through the RAF levy on fuel, but citizens derive little benefit from their contributions,” the AA noted.