Consumers should brace themselves for a significant increase in petrol and diesel price next month. The Central Energy Fund’s (CEF) latest data reveals substantial under-recoveries for both petrol and diesel, which are expected to drive up costs across the board.

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According to the CEF, the price of 95 Unleaded petrol could increase by 88 cents per liter, while 93 Unleaded petrol may see a hike of 95 cents. Diesel prices are projected to rise even more sharply, with increases ranging from R1.08 per liter for 50ppm to R1.11 per liter for 500ppm diesel. If these predictions hold, the cost of 95 ULP petrol could reach approximately R21.68 per liter at the coast and R22.47 inland, with 93 ULP potentially climbing to R22.54 inland.

Potential for Even Higher Petrol and Diesel Price Increase

These estimates might represent the lower end of potential fuel price hikes. Recent daily data shows that the under-recoveries are worsening, raising the possibility of even steeper increases. If current trends continue, petrol prices could surge by R1 or more per liter before the end of January. Such increases would place further strain on consumers already grappling with rising living costs and economic challenges.

Factors Driving the Petrol and Diesel Price Hikes

Two primary factors are contributing to the bleak outlook: rising global oil prices and a weakening rand. In December, Brent crude oil prices averaged $72.78 per barrel, but they have steadily climbed throughout January. Prices hit $80 on January 11 and peaked at $82 on January 15, before settling at $79.92 on January 21.

The increase in oil prices has been driven by a combination of geopolitical and seasonal factors. Intensified U.S. sanctions on Iran and Russia have reduced global supply, creating upward pressure on prices. Additionally, colder-than-usual weather in the Northern Hemisphere has led to increased demand for heating fuels, further tightening the market.

Meanwhile, the rand has lost significant value against the dollar. It averaged R18.11 during the last fuel price review period but broke through the R19 mark earlier this month. Although it has since recovered to R18.60, this improvement is insufficient to offset the impact of higher oil prices. The weaker rand means that South Africa must pay more for fuel imports, exacerbating the price increases felt at the pump.

Broader Economic Implications

The anticipated fuel price hikes are likely to have wide-reaching consequences for South Africans. Higher transportation costs will not only affect individual motorists but also drive up the price of goods and services. Businesses reliant on logistics and delivery may face increased operating expenses, which could ultimately be passed on to consumers.

Moreover, these price increases come at a time when the economy is already under pressure. Inflationary pressures are expected to rise, potentially impacting interest rates and household budgets. For low-income households, which spend a larger portion of their income on transportation and basic goods, the impact could be particularly severe.

Global Influences on Oil Prices

The increase in oil prices is partly attributed to intensified U.S. sanctions on Iran and Russia, coupled with heightened seasonal demand due to cold weather in the Northern Hemisphere. The International Energy Agency (IEA) notes that these factors have significantly influenced the market.

Interestingly, the World Bank had projected late last year that oil prices would average around $73 per barrel in 2025, assuming no major escalation in Middle East conflicts. However, uncertainty remains, especially regarding how the policies of former U.S. President Donald Trump might affect global oil markets and the supply-demand balance in 2025.

In addition to geopolitical risks, other factors such as production cuts by OPEC+ and unexpected supply disruptions could further drive up prices. While some analysts predict a stabilization in oil markets later in the year, the short-term outlook remains volatile and unpredictable.

What to Expect

With these compounding factors at play, South Africans should prepare for a challenging month ahead as fuel price increases are set to impact transportation and overall living costs. Unless there is a significant turnaround in the exchange rate or oil prices, motorists can expect higher expenses at the pump starting February.

To mitigate the impact of rising fuel prices, consumers may need to explore cost-saving measures, such as carpooling, using public transportation, or reducing non-essential travel. Policymakers, on the other hand, face the challenge of addressing the broader economic implications of these increases, which could further strain an already fragile economy. In the coming weeks, all eyes will be on the final fuel price adjustment announcement and any developments in the global oil market. For now, the outlook remains one of rising costs and economic strain for households and businesses alike.