Fuel prices for South Africa in 2020

With the international oil market stable, rand weakness is likely to be the dominant factor in fuel pricing for the year, says the Automobile Association (AA).

“Factors affecting the fuel price have rarely been more finely balanced than they currently are,” the association said.

The AA noted that much of the world’s oil is produced in some of the most politically fluid territories, and South Africa’s influence on the international oil price is negligible.

“We consume under 1% of the world’s daily oil demand. Even a total boycott of petroleum fuels in South Africa would be unlikely to affect world prices, so the country has little scope for influence.

“However, the recent tensions between Iran and the USA rattled the markets into a price spike of several dollars a barrel, showing where the influence truly lies.”

The association said that the unpredictability of the current US administration exposed South African fuel users to collateral damage from oil price movements, as seen during the Iran affair in early-January.

Local problems

Staying on the home front, the AA said the key problem remains, as for the past several years, economic policy.

It said that tax revenue undershoots, infrastructure underspend, de-industrialisation and ongoing power blackouts have counteracted entreaties by president Cyril Ramaphosa for investment.

“Capital follows returns, and if South Africa is, as seems likely before long, downgraded to junk status, the rand is likely to weaken further, offsetting returns investors might make. This increases the possibility of a downward spiral in which Rand weakness accelerates while risk-averse capital investment seeks other harbours,” the AA said.

It said it doubts a downgrade can be warded off, but noted that strong shifts in stance from government and clear articulation of investment-friendly policy are key to limiting the time the country spends outside the investment-grade brackets.

Petrol price increases

The AA said that the combination of these factors is rand negative, and is likely to offset the general stability the association expects to see in the oil price.

“Our overall view is that South Africans should expect increases in the fuel price in 2020, driven primarily by rand weakness. We do not foresee declines in the oil price sufficient to offset our expectations for rand depreciation, and we cannot rule out the possibility that South African fuel prices may test their previous record highs this year,” the AA said.

Absa recently warned that given South Africa’s ongoing fiscal challenges, it expects the government to lift indirect taxes in an effort to earn more revenue.

“In our forecast, we have assumed that the government will raise the general fuel levy by 30 cents/litre. But more importantly, we expect the government to increase the VAT rate by 1 percentage point to 16% in the 2020 Budget.”

The cost of 95 petrol increased by R2.29 in 2019 – from R14.01 in January 2019 to R16.30 in December. 93 petrol meanwhile, increased by R2.08 from R13,80 in January to R15.88 in December.

For diesel, 0.05% grade increased by R1.39 over the course of the year, from R13.14 in January, to R14.53 in December.