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Petrol Update: Motorists May See MONTHS of Price Hikes

As if South African motorists don’t already have enough to deal with this holiday season. We’ve got hijackings, congestion, roadblocks and the expiring licence discs. Brace yourselves, because December will bring another massive increase in the petrol price.

An apology to all the millennial drivers out there; there’s absolutely no way the Disney Channel could have prepared you for all of this. As our economy teeters on the brink of a death-rattle, we’ve seen four consecutive months of petrol hikes.

For a bit of background, last month we took a look at the price of fuel over the last decade. Now, what are we in for?

Saudi Turmoil Pushing the Petrol Up

Speaking to Talk Radio 702, Investec’s portfolio manager, Hanré Rossouw, attributed the impending petrol price upsurge to an increase in the global oil price. The increase would compound pressures we’ve been feeling in the Rand / US Dollar exchange rate and push the price of petrol up by around 60c at the beginning of December.

Oil has been trading at about $50 a barrel for the last two years. The price shot up by about $10 last week due to tensions in Saudi Arabia. Saudi Arabia is the world’s largest producer of oil, as we all know. Last week, their crown prince, Mohammed Bin Salman (or MBS to his fans), had dozens of princes and business leaders arrested. He claims these arrests were made in an anti-corruption drive.

Among those arrested was Ibrahim al-Assaf, a director of Saudi Aramco, the country’s oil company. Also included was billionaire investor Prince Alwaleed bin Talal.

Soon to be king, Prince Mohammed bin Salman proposed an initial public offering in Aramco last year, to stabilise the global oil price. Due to the current political turmoil, though, it is doubtful that this listing will move ahead.

Speaking of political mayhem…

ANC Turmoil Pushing The Petrol Up

The petrol price situation will be aggravated by ongoing political uncertainty in South Africa and the ANC. The AA (Automobile Association) believes that the ANC’s elective conference next month will increase the instability of the Rand. Following the recent Zuma cabinet shuffle, our currency debilitated to over R14 to the US Dollar. This will also influence December’s fuel prices.

The outcome of December’s ANC elective conference, and the almost inevitable ratings downgrades, will no doubt be piling pressure onto the economy and 2018 prices.

In the meanwhile, the demand for oil is still growing. It’s likely that we’ll see another hike next year, as well as an additional petrol price increase in January.

For now, we’re looking at around R14.71 per litre of petrol and R12.92 per litre of diesel next month. As of the day of this writing, the average global price of petrol is R15.65 per litre.

The REAL Pinch

According to Stuart Rayner of NAAMSA (National Association of Automobile Manufacturers of South Africa), South Africa is about 15 years behind the rest of the world in terms of fuel quality and standards.

“With the widespread introduction of new technology, including new 4-way catalytic converter-equipped vehicles in Europe during 2018, we will now find that for the first time since the 1996 introduction of unleaded petrol in South Africa – that many regular petrol engine motor cars as available to the general public in Europe will not be able to be marketed in South Africa,” said Rayner.

“This will effectively deny the motoring public access to latest low emission vehicle technology.”

So, according to Rayner, any further progress in the South African automobile industry is unlikely without the introduction of the latest engine technology. In turn, this will require new, enabling fuels.

He’s stated that to continually penalise vehicle manufacturers and importers for not introducing this latest engine technology is illogical. Many of those new vehicles simply won’t be able to operate on South African fuel. The newer model cars would essentially require pricey reverse engineering in order to use older, less efficient engines.

Due to the unavailability of cleaner, low sulphur petrol, product restrictions are already being applied to local companies by their foreign chiefs.

“This calls into question the rationale for continued application of CO2 taxes on new motor vehicles in South Africa,” said Rayner. “And reinforces the urgent need for the introduction of clean fuels.”