Fuel prices will jump to record highs in June on the back of stronger international oil prices, and a deficit carried over from April. This is according to the Automobile Association (AA), which was commenting on unaudited month-end fuel data released by the Central Energy Fund (CEF).
"The Rand traded in a fairly narrow band against the US dollar throughout May. However, international oil prices have come under strong pressure, accounting for two-thirds of the price rise which will come into effect next Wednesday, 6 June,” the AA says.
The Association says this month’s price hike also includes a large deficit carried over from April.
“The Department of Energy’s monthly close-out happened early due to the public holidays in April, after which the Rand lost almost 60 cents against the US dollar in a matter of a day. This meant a substantial fuel price rise was a near certainty from the start of May,” the AA explains.
Petrol is expected to rise by up to 85 cents a litre, diesel by 87 cents, and illuminating paraffin by 82 cents.
Fuel prices reached an all time high in May 2018 as prices neared the R15 per litre mark.
The recent increases are as a result of the weakening Rand and rising oil prices. Earlier in May United States President, Donald Trump, withdrew from the Iran nuclear deal and will be re-instituting sanctions against the country.
Consequently, oil prices have seen drastic spikes bringing prices to some of their highest since 2014. These increases are expected to last right up until next year.
With no significant decreases in sight, South African motorists need to start paying more attention to reducing fuel costs again. The managing director of MasterDrive, Eugene Herbert, says there are a few simple techniques which all drivers can follow to reduce their fuel consumption.
Herbert said: "One of the simplest is to avoid speeding. Reducing speed by 20km/h in certain instances can reduce fuel consumption by 20%.
Herbert said: "Drivers who speed also often make abrupt lane changes, sudden acceleration and harsh braking. This increases both fuel consumption and wear and tear on your vehicle. Increasing your speed only makes minimal difference to trip times."
Herbert also recommends keeping your engine revs between 2500 and 3000rpm. He adds: "This technique can also result in a savings of up to 20% in fuel consumption. It, however, is only possible if you adopt certain driving habits. One is planning your journey so you do not rush. Another is to avoid aggressive driving.
Herbert concluded: "Lastly, undergo training to learn how to drive defensively. Defensive driving will equip you with various skills which will not only have a direct impact on your safety on the roads but also on your fuel consumption. Changing how you accelerate, change your gears or learning to anticipate traffic changes can all impact your fuel usage,".
Consequences on the economy
As consumers will be the worst affected by fuel price increases, it places pressure on operators of heavy good’s vehicles to reduce fuel consumption.
With high petrol prices looming over the next few months, and perhaps even the whole year, all drivers need to do what they can to save petrol.
The first of two major fuel hikes took place on 2 May 2018, with an increase of 45 cents per litre.
The next increase will hit South Africans at the end of this month with the highest it has ever been at 85c a litre, pushing the price of fuel to more than R15/litre according to the AA.
But why have fuel hikes been so frequent?
Inflation rate increase
According to StatsSA, South Africa’s consumer inflation rate has jumped to 4.5% in April after reaching a seven-year low of 3.8% in March. Much of the increase was a result of price rises in product groups that attract specific taxes, namely alcohol, fuel and sugary drinks.
Stats SA says: "A one percentage point increase in value added tax (VAT) also came into effect in April. The exact impact on inflation is not yet entirely clear in the data, since VAT is not paid on all goods and services, and the introduction of the higher rate is being treated differently by providers.
"Motorists in particular have felt the pain. The price for inland 93 octane petrol increased by 69c/l in April, of which 52c was a result of tax increases. Fuel prices in general have risen by 9% over the past 12 months, placing fuel as the number 1 product (on par with meat) with the highest year-on-year price increase.
Fuel price to increase
The AA says: "A substantial weakening of the rand against the US dollar has combined with sharp increases in international oil prices to produce a new record-high fuel price of over R15 a litre for fuel. The previous highest price for fuel was in December last year when petrol cost R14.76 a litre.
Petrol is likely to increase by more than 80 cents a litre at the end of May, according to the AA.
Fuel taxes and levies v CPI inflation
The graph below illustrates the increase in fuel taxes and levies between 2013 and 2017 compared to the average Consumer Price Index (CPI) inflation for each year. Figures for 2018 are estimates based on January 2018 fuel prices, and estimates of the projected average CPI at the end of the term. These figures will vary depending changes to these numbers.