Why petrol is above R25 per litre

South African motorists are now paying a staggering R25.86 for every litre of petrol as of October 2023, reaching figures not seen since fuel prices first peaked at an all-time high of R26.74 per litre in July 2022.

It paints a bleak picture for all vehicle owners both private and commercial, as the cost of everyday trips takes an increasingly heavy toll on peoples’ wallets and businesses’ bottom line, ultimately raising the cost of living for everyone in the country.

An increasingly expensive year

As predicted by the Automobile Association (AA), October has seen fuel prices in South Africa reach their highest point in 15 months, thanks to a hike of more than R1.08 per litre for petrol, and nearly R2.00 per litre for diesel.

You can see a breakdown of South Africa’s 2023’s official petrol prices to date, and how they have changed from month to month, in the table below:

With the exception of two small reductions around the middle of the year, prices have been on an upward trend since January.

The AA’s predictions that prices would cross the R25 mark in October were based on trends established in previous months that showed two main drivers behind the growing cost of fuel – international oil supply, and monetary exchange rates.

The global oil supply has been under pressure this year for various reasons, including an increase in demand from manufacturing countries like China which only recently began to reach its pre-Covid production levels, as well as the fact that many major oil-producing nations have lowered their output.

Saudi Arabia and Russia, for example, have extended their voluntary oil cuts until the end of the year to limit supply and support oil prices, according to Reuters.

Additionally, a recent controversy has developed regarding Iran and the ongoing Israel-Palestine conflict, as the former has called for an embargo against the Israeli state which immediately led to a 2% increase in oil prices.

Conversely, Iran has been accused of supplying oil to Hamas, the militant group responsible for the recent attacks in Israel, which could lead to sanctions against Iran from the United States that would ultimately impact global oil production.

On a more positive note, the United States has recently ramped up its own production and is expected to hit an output of 13 million barrels a day – something not seen since the pandemic – which should help to alleviate the global fuel supply issues and hopefully lower prices.

The other key factor has been the rand’s deteriorating performance in relation to the US dollar, which is now resting at R18.98 to $1.0 as of the time of writing.

There are multiple reasons for this, starting with the record levels of load-shedding the country has experienced this year which has stifled economic growth, all while the US is currently in a very strong economic position, according to Moneyweb.

Government overspending has also been cited as a contributor to the rand’s declining value due to the high inflation it causes.

The dollar/rand exchange rate is particularly important because the international value of crude oil is set by the world’s reserve currency, namely the United States dollar, so the worse a country’s currency exchange rate performs, the more expensive it is to buy and import petrol.

While the price of a barrel of oil is adjusted several times a month, October has already seen barrels of crude being sold for $90, which converts to roughly R1,700 at the current exchange rate.

Bear in mind that this is only for the crude oil, which still has to be refined into usable petroleum and imported to South Africa – a country that also places high taxes and levies on every litre of fuel.

These include the slate levy, IP tracer levy, general fuel levy, road accident fund levy, petroleum products levy, and customs and excise duties, which together account for approximately 31% of the final price you see at the pump.

September also saw a 5.0c increase in the retail margins on petrol, which the Department of Mineral Resources and Energy said was to accommodate wage increases for staff at filling stations.

It’s for these reasons that groups like the People Against Petrol, Paraffin Price Increases (PAPPPI) have argued that South Africa should follow India’s example to reduce fuel prices, which includes importing fuel from countries with better rates and producing our own fuel – something that South Africa is in a position to do.

Sasol already produces fuel made from coal at a rate of approximately R6 per litre, but this is sold to other countries for profit leading to local consumers purchasing imported fuel.

If South Africa started to predominantly rely on its own fuel production, motorists may see prices get slashed to as little as R10 per litre, said PAPPPI.

Keyword: Why petrol is above R25 per litre