Mind the gap Large gap between the pump price and the basic fuel price

In contrast, Bloomberg points out that the four Middle Eastern Opec members have combined reserve assets of $826,4bn to ride out the loss in revenue caused by low prices. It notes that the US Energy Information Administration estimates that the price decline will cost all 12 Opec members a total of $257bn in lost revenue this year, suggesting that Opec could continue suppressing prices for a considerable time in its high-stakes game to defend its market share from the inroads being made by the US fracking industry.

If the current over-recovery on petrol is sustained for January, motorists could experience a further 50c/ l cut in the fuel price in February. An over- or under-recovery occurs because, though oil companies buy oil internationally at different daily prices, the SA authorities change the fixed basic fuel price just once a month based on the average from the previous month.

Oil companies experience an over-recovery when oil prices fall, allowing them to pay less on average in the markets in a particular month than SA’s fixed monthly basic fuel price. The benefit is passed on to the consumer through a concomitant reduction in the fuel price the following month.

Claire Bisseker bissekerc@fm.co.za