The Ups and Downs of Fuel Prices




Image Source: http://businesstech.co.za/

 

Ever wondered why petrol and diesel prices in South Africa are in a constant state of flux? From month to month we’re never quite sure what we will be paying every time we have to fill up our cars. Some months we’re overjoyed because we’ll be paying a few cents less a litre and other months we’re left reeling by the massive price hike.

How Crude Oil Influences the Cost of Fuel

Both petrol and diesel come from a non-renewable energy resource known as crude oil, which is a fossil fuel, and therefore in limited supply. 

The petrol price in South Africa is linked to the price of crude oil in international markets and is quoted in US dollars per barrel. At the time of writing, the average price of petrol globally was R13.68 per litre.

However, there is a substantial difference in prices amongst various countries around the world. Wealthier countries generally tend to have higher fuel prices while poorer countries and those that produce and export oil have lower prices. The differences are due to each country’s various fuel taxes and subsidies that are imposed, as well as supply and demand.

To illustrate, on a scale from lowest to highest fuel prices out of 177 countries, South Africa currently sits at 68th position together with Fiji and Bhutan at a cost of US$0,85 p/litre, while Venezuela holds first position for the lowest fuel cost at US$0,01 p/litre, and Hong Kong the highest at US$1,87 p/litre.

The South African Department of Energy explains how crude oil prices combined with the rand/dollar exchange rate has a major impact on petrol prices:

A crude-oil refinery's biggest input cost is crude oil. For a refinery to make a profit, the price for the product manufactured from crude oil has to be higher than that of the crude oil price. When crude oil prices increase, the petrol price has to increase so that crude oil refineries are able to cover their own costs.

In South Africa the fuel price is regulated by government and adjusted on a monthly basis. The new price is calculated by the Central Energy Fund on behalf of the Department of Energy. The constant price fluctuations are informed both by local as well as international factors. 

The main reasons for petrol price fluctuations are dependent on the following:

1.     The global oil price - South Africa imports both crude oil and finished products at a price set at international level. The Basic Fuel Price (BFP) is based on what it would cost a South African importer to buy petrol from an international refinery and to transport the product onto South African shores.

2.     The currency exchange rate between the South African rand against the US dollar.

See a breakdown and comprehensive view into the current fuel prices, the next estimated petrol price forecast, and a detailed breakdown of what goes into the fuel price, such as storage and delivery costs, fuel levies, and distribution costs.

Prices may fluctuate from month to month and year to year, but one thing is clear, as long as there is demand, the upward fuel price trajectory will continue. One answer for cash-strapped South Africans is to find an economical car that will stretch their money further.

 


 

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