FUEL PRICE Foiled by the exchange rate

The halving of the international oil price to lows last seen five years ago has had a substantial effect on pump prices in SA, where consumers are now paying around R3 less for a litre of petrol than they did six months ago. But the drop was not as dramatic as it might have been.

Given that the price of Brent Crude has halved to around US$50/barrel from $111/bbl last July, it may be fair to ask why pump prices in SA haven’t also halved from R14,08/ l then to R7 now. Instead, Gauteng motorists are paying R11,02/ l at the pump this month for 93 octane petrol — a drop of just 21,7% over the past six months.

But there is a large gap between the pump price and the basic fuel price. In SA, the basic fuel price is an import parity price determined by international crude oil prices. Since the price of oil is reflected in US dollars, the rand/US dollar exchange rate plays a key role.

The exchange rate has weakened by a substantial 80c over the past six months, from R10,67/$ on average in July’s calculation to the figure of R11,47/$ used by the authorities in calculating January’s basic fuel price.

From July last year to this January, the basic fuel price of 93 octane in Gauteng has fallen by 38,1% from R8,42/ l to R5,21/ l. The price of diesel (which has different characteristics, break-even rates and applications to petrol) has fallen by 31,4%, from R8,49/ l to R5,82/ l over the same period.