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Cut in petrol price disappoints

The cut in the petrol price, announced on Friday 2 December, is disappointing, inadequate and unfortunate, economist Mike Schussler says.

Earlier the Department of Energy said that the retail price of all grades of petrol would decrease by 11 cents per litre on Wednesday 7 December.

However, the price of 0.05% sulphur diesel and the price of 0.005% sulphur diesel would rise by 47.239 cents per litre and 44.239 cents per litre respectively.

"We were expecting a larger drop in the petrol price - around 25c/l - and that would have meant that South Africans could have gone off on holiday this year with less concern about their budgets."

He added that the diesel price had also increased by more than what economists had forecast.

Logistics costs

Schussler said the fact that storage, handling and delivery costs on petrol and diesel had risen could trigger price increases where contracts were concerned.

According to the Department, from 7 December the storage, handling and delivery cost on petrol, diesel and illuminating paraffin would rise from 11.4c/l to 21.0c/l.

"Price pressures will come through when it comes to inflation and with CPI we'll easily break through the 6% barrier," Schussler added.

"We expect oil prices to be stable until February when they should decline a little, but the drop won't be big.

"So today's data means really that the chances of an increase in CPI being close to 7% in the next three to four months is very likely."

Schussler explained that in addition to the rise in storage costs, petrol and diesel prices had also been affected by demand in other countries.

"Diesel is in demand overseas because of electricity shortages and more gas turbines - that run on diesel - are being used.

"Also, there is less demand for petrol in the northern hemisphere at the moment."

Below expectation

Public Affairs Manager at the Automobile Association of SA, Gary Ronald, said he had expected a cut in the petrol price of around 24c/l.

"This is disappointing as it will push up inflation," Ronald added.

Economist Tony Twine said that the announcement would have been "something of a disappointment" for motorists as they had been expecting a drop of25c/l in the petrol price and an increase of35c/l for diesel.

In its statement on Friday, the department said that the retail margin on petrol had risen.

"This margin has increased and this is because at the end of October and November we were expecting a bigger retail price adjustment than only the 4c/l that was given," Twine explained.

"We know that retailers had applied for a 15c/l increase - and so now it comes to be at just over 13c/l.

"It was probably thought that because petrol increased so rapidly in September, October and November, that it might be wise to split the increase in the retail margin."

As for storage costs, Twine said that the increase from 11.4c/l to 21.0c/l was "steep."

Effect of exchange rate

The Department of Energy said in its statement on fuel prices that during the period under review, the average international product prices of petrol had decreased, while that of diesel and illuminating paraffin had increased.

The average rand/US$ exchange rate weakened when compared to the previous period.

"The average rand/US$ Dollar exchange rate for the period 28 October to 1 December was 8.1398 compared to 8.0012 during the previous period," the Department added.

The deterioration of the rand against the US dollar increased the contribution to the basic fuels rice on petrol, diesel and illuminating paraffin by 10.21c/l, 11.87c/l and 11.72c/l respectively.

The department said the minister of energy had approved the implementation of revised operating cost recoveries and investor margin into the price structures of petrol, diesel and illuminating paraffin with effect from December 7.

The retail margin on petrol would increase from 85.2c/l to 91.8c/l, the wholesale margin on petrol, diesel and illuminating paraffin would be adjusted to 52.5c/l, that was a decrease of 1.601c/l on 95 petrol octanes and a decrease of 1.369c/l on 93 petrol octanes, a decrease of 1.361c/l on diesel (0.05% and 0.005% Sulphur) and a decrease of 1.585c/l on illuminating paraffin.


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