R40 a litre petrol price fears not based on reality: economists

Fears that SA’s petrol price could double to R40/l in the short term are unfounded, but the country can still expect some economic pain as long as the Ukraine crisis continues, say economists.

This was in response to media reports which shared comments that SA consumers could face a doubling of the petrol price from its current level of just over R20/l.

While the price of benchmark Brent crude oil has surged and left markets reeling in the wake of the Russian attack on its neighbour, the reality is that about half of SA’s petrol price comprises various levies such as that paid to the Road Accident Fund, said Econometrix chief economist Azar Jammine.

As long as government does not alter those levies, the impact of higher oil prices will be much less dramatic than some commentators fear, he said.

“The price of oil would have to go to $400 a barrel,” said Jammine, adding that he anticipated the price at the pumps could rise to around R24/litre.

South Africans should, however, brace themselves for some economic fallout from the crisis though the impact would not be as severe in SA as in other countries.

SA has the advantage of having less printed money in circulation and this will have the effect of cushioning the blow that many advanced economies are likely to feel.

“The growth in money supply is less than inflation,” he said. “This is a function of the weakness of the SA economy. The general expectation is that there will be a knock-on effect, however.”

Jackie Walters, director of the Institute for Transport and Logistics Studies and professor at the University of Johannesburg, said the anticipated fuel price rises could have “a devastating impact” for South Africans as they will result in higher prices for food and transport. 

About 90% of cargo in SA travels by road, said Walters. “The economy is dependent on [road] transportation.” he said.

Taxi and bus commuters can also expect to feel the pain of the Ukraine war in their pockets. 

“Taxi operators have been holding out [against hiking fares] but the fuel price increases have been severe,” Walters said. “I don’t think they can hold out much longer.”

Meanwhile, bus companies were in an even worse position, he added.

“Fuel makes up around 30% of their total costs, so a 10% rise in the petrol price means overall costs go up 3%,” he said.

The impact could be reduced if Opec member states increase oil production which, in turn, would put downward pressure on fuel prices, he added.

“The solution won’t be quick, however,” Walters said. “We are going to feel the impact for some time.”

Road Freight Association CEO Gavin Kelly agreed that fears that SA’s fuel price would hit R40/l were just speculation.

“We could speculate that the price could hit R60/l and it would still just be speculation about speculation,” he said.

Kelly warned, however, that every rise in the fuel price resulted in higher transport costs.

“Right now if you look at the rand/dollar exchange rate and the dollar price of fuel compared to a week ago, then a litre of fuel would go up by around R3.50-3.70,” he said.

“That’s not R40 a litre.”

The effect would be the same regardless of the increase, Kelly said. 

“The impact on logistics costs will be borne by the consumer.” 

Linden Birns, aviation analyst and MD of consultancy Plane Talking, said air travellers could expect airlines to reintroduce measures such as fuel surcharges as the price of jet fuel rises.

“It won’t surprise me if we see a return to fuel surcharges,” he said. “One way or another, costs are going to be passed on to the customer.”

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