Fuel price to re­main sta­ble

Ex­perts say in­creases not likely to per­sist through­out the year de­spite resur­gent oil price

The Star Early Edition - - BUSINESS REPORT - Siseko Njobeni

WITH 2017 only a few days old, South African mo­torists have al­ready felt the pinch of ris­ing fuel prices but, ac­cord­ing to lo­cal econ­o­mists, the in­creases were not likely to per­sist through­out the year.

The Depart­ment of En­ergy last week damp­ened the fes­tive cheer when it an­nounced petrol price in­creases of be­tween 48c and 50c a litre. The diesel price rose by up to 39c a litre, while il­lu­mi­nat­ing paraf­fin prices went up by 43c a litre.

This has raised fears that al­ready hard-pressed con­sumers could be on the re­ceiv­ing end of more fuel price hikes, es­pe­cially given the ex­pected in­crease in global oil prices.

Bank of Amer­ica Mer­rill Lynch’s Com­mod­ity and De­riv­a­tives Strate­gist, Fran­cisco Blanch, last month pre­dicted that Brent Crude would rise to a peak of $70 (R954) per bar­rel this year. Yes­ter­day af­ter­noon Brent Crude oil was trad­ing at $56.15 a bar­rel.

Ef­fi­cient Group econ­o­mist Francois Stof­berg said yes­ter­day that the in­creases were un­likely to be a trend through­out this year. “We ex­pect to see fur­ther in­creases over the next quar­ter, as lo­cal petrol prices ad­just to the oil price… How­ever, to­wards the third quar­ter of 2017 we ex­pect a strong rand (R13/$1) should help to curb lo­cal petrol prices,” said Stof­berg. He said the oil prices were likely to peak at $66 a bar­rel, but would av­er­age at $62.

In a note last Thurs­day, Econometrix at­trib­uted Wed­nes­day’s fuel price hike to a rise in the in­ter­na­tional price of crude fol­low­ing an agree­ment be­tween Opec and non-Opec mem­bers to cut pro­duc­tion by about 2 per­cent this year.

“Fears abound that petrol prices will keep in­creas­ing through 2017. How­ever, this is by no means cer­tain. Based on pre­vi­ous ex­pe­ri­ence, there is no guar­an­tee that the re­duc­tion in out­put will prove to be sus­tained,” it said.

Econometrix did not rule out a de­cline in the oil prices in the face of pos­si­ble breaches to re­duced out­put quo­tas and the pos­si­bil­ity of US shale gas pro­duc­ers in­creas­ing out­put. It said cer­tain Opec mem­bers such as Libya and Nige­ria were not sub­jected to the quota re­duc­tions.

Ger­rit van Rooyen, an econ­o­mist at NKC African Eco­nomics, said yes­ter­day the petrol prices in­creased last year mainly due to a re­bound in in­ter­na­tional crude oil prices as ma­jor petroleum ex­porters struck deals to limit their daily out­put, while taxes and levies also added al­most 36c per litre to lo­cal pump prices.

“How­ever, a strength­en­ing of the rand since the start of 2016 mit­i­gated petrol price in­creases. Look­ing at 2017, we ex­pect petrol prices to rise fur­ther due to a grad­ual weak­en­ing in the rand com­bined with an­other hefty in­crease in fuel tax. In con­trast to 2016, we ex­pect the Brent Crude oil price to sta­bilise in 2017, reach­ing a peak in the first quar­ter and av­er­ag­ing $52/bbl for the year.

“We are scep­ti­cal about whether the agreed pro­duc­tion cuts by Opec and non-Opec coun­tries will be mean­ing­ful to re­duce crude in­ven­to­ries and shore up prices.

“We are con­cerned about slow­ing de­mand from China and In­dia and ex­pect frag­men­ta­tion within Opec to resur­face in the months ahead,” said Van Rooyen.

He said NKC ex­pected oil prices to sub­side slightly from cur­rent lev­els. He said the ba­sic fuel price was likely to come un­der pres­sure be­cause of the rand weak­en­ing to about R15 to the dol­lar by year-end.

“The main drivers be­hind the weak­en­ing of the rand… is that con­tin­ued po­lit­i­cal in­sta­bil­ity and anaemic growth will inevitably com­pel the rat­ing agen­cies to down­grade South Africa… non-in­vest­ment grade and that the ex­pected re­sump­tion of the US in­ter­est tight­en­ing cy­cle will hurt emerg­ing mar­ket sen­ti­ment. More­over, the Na­tional Trea­sury is look­ing for an ad­di­tional R28bn in tax rev­enues in the next fis­cal year and a size­able in­crease in fuel tax will no doubt be on the cards,” he said.

PHOTO: ITUME­LENG ENGLISH

The Depart­ment of En­ergy last week damp­ened the New Year cheer when it an­nounced petrol price in­creases of be­tween 48c and 50c a litre. Econ­o­mists say fuel price in­creases are un­likely to be a trend through­out this year.

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