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What Affects the Petrol Price in South Africa?

By Bidvest Bank
23-02-2015
By far the biggest factor in the rise and fall of the petrol price in South Africa is the global price of crude oil, which is used to produce petrol and diesel. Over the last six months, the price of oil dropped from $110 to its current price of just over $60 a barrel. As a result, there were three separate petrol price cuts in South Africa, from just over R14 per litre in August 2014 to just over R10 per litre in February 2015. This drop is great news in terms of savings for both businesses and consumers. 

Besides the fluctuating price of crude oil though, several other factors also influence the price we pay when we fill up our cars. Here’s what also affects it:

  • Rand depreciation. Because oil is traded in Dollars, the Rand/Dollar exchange rate affects how many Rands we need to pay for a barrel of oil. Over recent months, the Rand has depreciated against the Dollar, which means that even though the petrol price may have dropped, it actually now costs more Rands to buy the same amount of oil. The net effect of this in recent months is a drop in the petrol price, but not as much as if the Rand had kept its same value. 
  • Fuel levies. The National Roads Act of 1971 allows the South African government to collect a fuel levy from every litre of fuel that’s sold. Since 1998, the government has collected over R240 billion in this way. Ahead of the new budgets soon to be released, it’s expected that taxes on petrol will be increased in order to pay for budget items such as the failing e-toll system. 
  • Wholesale margins. Fuel wholesalers in South Africa consist of the seven major oil companies in addition to around 600 independent wholesalers. The government sets the wholesale margin, keeping it stable at around 15%. 
  • Retail margins. There are approximately 4600 service stations in South Africa who all need to make a profit on the petrol they sell Like the wholesale margin, South Africa’s petrol’s retail profit margin is fixed by the Department of Energy, and is determined by individual costs of each service station including things like rental, interest, labour, overheads and entrepreneurial compensation.
  • Transport and delivery costs. Petrol and diesel are transported to depots and petrol stations by pipelines, rail, sea and road, the costs for which are then added on to the petrol price. This explains why fuel costs are less in coastal cities where there are ports nearby, as opposed to inland cities where fuel needs to be transported further via trucks. 

The price of petrol is important to understand because it affects both individuals and businesses as it rises and falls. For consumers, a rising petrol price means less disposable income for other goods and services, particularly luxuries. This in turn affects the amount of money businesses make. Especially for businesses in the transport or logistics industry, petrol prices heavily affect their operational costs. 

So what’s in store for the petrol price in the coming months? In a recent statement the Automobile Association of South Africa said that the increase in international oil prices, together with a spike in the Rand/Dollar exchange rate, means that the price of petrol, diesel and illuminating paraffin are all likely to increase in March. So, while we may have had some respite in the cost of fuel in the last few months, it’s time to fill up your car now before the price rises again and we all have to tighten our belts. 

With the price in petrol set to rise, it’s more important than ever to try and make your money stretch further. With a minimum balance of just R50.00, the Bidvest Bank Account™ helps you save by offering you competitive interest rates and low monthly fees.