Small fuel price cut a drop in the ocean for consumers

CONSUMERS look like they could be in for a minor relief with a petrol price cut on the cards in early August.

The latest projection by the Central Energy Fund is for a 29c a litre cut in the fuel price on August 5. The Department of Energy will announce the actual figure on July 31.

If the fuel price does drop, it will provide local consumers with a small relief at a time of rising job cuts amid high unemployment and low local economic growth.

A decline in the oil price will also serve as a minor break on consumer inflation, which is a key measure used by the Reserve Bank in setting interest rate hikes.

Adding to the pressure on the international oil price is the news that world powers and Iran finally struck a deal this week after more than 20 months of talks, setting in motion the eventual lifting of sanctions on Iranian oil exports in exchange for curbs on the Islamic nation’s nuclear programme.

News of the deal knocked the Brent crude price earlier this week and yesterday Brent crude fell by 1.32 percent to $57.74 (R716) a barrel.

Positive impact

Craig Parker, a senior economic consultant at Frost & Sullivan Africa, said for South Africa, lower oil prices would have a short-term positive impact on local consumers and the manufacturing sector, as fuel prices might decrease and lower input and transport costs.

He said the oil price, however, would not have an impact on South Africa as it would for Nigeria, as we were not an oil producer. Nigeria relies on oil revenues and this impacts fiscal revenues and government spending.

The year began with much lower petrol prices in South Africa compared with 2014 but from April consumers found themselves having to pay more for fuel and electricity, adding to inflationary pressures.

The budget added more tax to the consumer in the form of increased levies for fuel and the Road Accident Fund.

Martyn Davies, the chief executive of Frontier Advisory, said about one quarter of South Africa’s import bill was oil, and a reduction in the cost would to an extent ease inflationary pressures.

“However, the South African economy and consumer have not benefitted as much as they could have with the rapid decline in the oil price in recent months as the state has absorbed the benefits through taxation.”

Davies said for real benefits to take place, the state had to allow the benefits of a reduced price to flow to the consumer.

In another development, South Africa is looking forward to resuming trade with Iran, including oil imports.

“Of course, if sanctions are lifted that’s a win-win situation and South Africa will also benefit from that,” Foreign Minister Maite Nkoana-Mashabane said yesterday.

Iran was once the biggest oil supplier to South Africa, which imports around 380 000 barrels per day. Nkoana-Mashabane said South Africa had never agreed with sanctions against Iran and its oil refiners had suffered from a ban on crude exports from the Middle Eastern country. – Additional reporting by Bloomberg and Reuters