Motorists could see ‘catastrophic’ fuel price hikes by end October, AA warns

The Automobile Association (AA) on Tuesday warned that the country’s drivers could see a ridiculous surge in fuel prices by the of the year, starting at the end of October, driven by the surge in oil prices, a weaker rand and a looming hike in the slate levy.

AA says that motorists can expect petrol to cost 99 cents more per litre and illuminating paraffin to rise by R1.42 a litre, which will ultimately leave consumers paying more than R19 a litre for petrol – 30% more than what it cost in January – and R17 a litre for diesel.

“The hikes in diesel and illuminating paraffin would be the largest in South African history, bearing in mind that this is only based on half a month’s data,” AA said in a statement.

“R20 a litre for petrol is now a realistic scenario before the end of 2021,” it added.

Oil price reaches its highest level

On Monday, oil prices climbed to multi-year highs, upheld by power generators moving away from expensive gas and coal to fuel oil and diesel. AA does not anticipate that this will ease in the short term, especially given that the northern hemisphere is approaching winter.

“Brent Crude has broken through the 85 US dollars-per-barrel mark and the basket of oil prices used to calculate South Africa’s oil price are following Brent higher. We note the concern this is generating in the US, where President [Joe] Biden was reported to have called on the OPEC+ cartel to increase oil output to stabilise prices. This has not generated a response from OPEC+, and our view is that a response is not likely, since the current price pressures are beneficial to the cartel’s members,” AA said.

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A weaker rand and governance

The association said that with the average rand/US dollar exchange rate sitting at around R14.55 – which remains far above its June levels of R13.50 – plus a looming increase in the slate levy, consumers should not expect relief any time soon.

“The under-recovery to date this month has been vast, and the government will, in our view, have no option but to increase the slate levy to recover this deficit, making for a bigger hike,” AA noted.

“South Africans are paying at the pumps for weak governance, as one of the key indicators of the price of fuel depends on the exchange rate.”

Source: moneyweb.co.za