CityPress - - Busi­ness - GER­RIT VAN ROOYEN busi­ness@city­press.co.za

The oil price this year may drop to as low as $10 per bar­rel, but a weak rand and a host of fuel levies means that fall will bring lit­tle re­lief to South African mo­torists. The price of Brent crude dropped by al­most 5% per bar­rel in the first two weeks of 2016 and stood at $29.54 on Fri­day night. The last time oil was so cheap was in Fe­bru­ary 2004 – but un­for­tu­nately it does not mean mo­torists will pay the same price for fuel as in 2004.

The price of 97 oc­tane in Fe­bru­ary 2004 on the coast was R4.02. To­day, 95 oc­tane on the coast costs R11.94.

Not only has the price of the dol­lar weak­ened from R6.61 to R16.40 in this time frame, but other costs in the cal­cu­la­tion of the petrol price have risen sharply.

The petrol levy has risen from R1.01 to R2.55 per litre. The road ac­ci­dent levy rose from R0.21 to R1.54 per litre and the re­tail profit mar­gin rose from R0.35 to R1.61.

When the oil price traded at nearly $140 per bar­rel in 2008, no­body pre­dicted it would tum­ble by nearly 70% from Jan­uary 2014, when the price was above $100 per bar­rel.

Sud­denly, an­a­lysts are no longer laugh­ing at Amer­i­can in­vest­ment bank Gold­man Sachs’ pre­dic­tion last year that the oil price would drop to $20 per bar­rel.

Bri­tish bank­ing group Bar­clays now ex­pects an av­er­age price of only $37 per bar­rel in 2016, and most an­a­lysts have ad­justed their pre­dic­tions of the price from $40 and $50 a bar­rel to be­tween $30 and $40 per bar­rel.

Paul Horsnell, head of com­mod­ity re­search at Stan­dard Char­tered, be­lieves the oil price could even drop to $10 per bar­rel be­cause the price is cur­rently a func­tion of un­cer­tainty in the global fi­nan­cial mar­ket.

“The oil price fluc­tu­ates pri­mar­ily due to move­ments in other as­set classes such as the US dol­lar and eq­uity mar­kets,” said Horsnell.

The price of lead-free 93 oc­tane in Gaut­eng could drop to R9.55 if the oil price drops to $10 per bar­rel.

“The con­sen­sus has sud­denly changed and the feel­ing now is that there’s a lot more oil than peo­ple know what to do with,” said the com­modi­ties di­vi­sion of Rand Mer­chant Bank (RMB). It says an­a­lysts ex­pect that the lower oil price will force Amer­i­can shale gas pro­duc­ers out of the mar­ket, but Amer­i­can pro­duc­tion hasn’t de­creased enough to re­move the over­abun­dance of oil on the global mar­ket.

Mar­ket glut

In fact, US oil sup­plies re­main at 100 mil­lion bar­rels (or 159 000 mil­lion litres) above the five-year av­er­age, re­ports Bloomberg.

“It’s not clear how Amer­ica’s oil sup­plies will change and it is not clear how much oil China is able to store,” said RMB.

Although geopo­lit­i­cal ten­sion in the Mid­dle East usu­ally leads to higher oil prices, this is not the case at the mo­ment.

“The bat­tle be­tween Saudi Ara­bia and Iran will not be one with tanks and guns, but also with oil.”

Sanc­tions against Iran’s oil ex­ports are ex­pected to be lifted af­ter the coun­try sealed an agree­ment with the US to close its nu­clear power pro­gramme.

Iran’s oil min­is­ter has re­peat­edly said at meet­ings of oil pro­duc­ers’ car­tel Opec that other Opec coun­tries should make way for Iran’s oil pro­duc­tion when it is al­lowed to ex­port again.

Ac­cord­ing to RMB, that seems un­likely af­ter Saudi Ara­bia broke diplo­matic re­la­tions with Iran.

This fol­lowed af­ter pro­test­ers at­tacked Saudi Ara­bia’s em­bassy in Iran in re­sponse to the ex­e­cu­tion of the prom­i­nent Shi­ite cleric Sheikh Nimr al-Nimr.

“Saudi Ara­bia and other Opec coun­tries that are their part­ners will not make space for Iran, be­cause in ad­di­tion to their po­lit­i­cal agen­das, they must also bal­ance bud­gets, and

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