Petrol and diesel price disaster is hitting South Africans hard

South African motorists have sharply cut their fuel usage and purchases amid elevated petrol and diesel prices over the past two months. 

This trend is likely to continue as the National Treasury unwinds its relief from June onwards, which will largely offset reductions coming from a declining oil price. 

Discovery Insure data indicates that motorists bought 23% less fuel in May, with fuel transactions plunging by 17% compared to January and February. 

This data comes from telematics collected by Discovery Insure and fuel card transactions through Discovery Bank. 

The drop in May follows a 35% drop in fuel purchases in April, when card transactions declined by 28% after the first hike following the outbreak of conflict in the Middle East. 

Discovery Insure data showed that South Africans are now driving 9% less than before the fuel price increases, suggesting that most have cut back as much as they can. 

“These are not normal fluctuations. When compared to the past few years, we rarely see fluctuations of more than 1% in fuel demand and driving behaviour,” Discovery Insure CEO Robert Attwell said. 

“What we are seeing now reflects the real financial pressure people are under. Despite driving less and buying less fuel, overall spending is 15% higher compared to January and February. Simply put, motorists are spending more money and getting less fuel for it.”

Discovery Insure’s data also pointed to an interesting trend among motorists using different types of fuel, with diesel and petrol prices being impacted to varying degrees. 

Diesel users cut back their driving the most, slashing mileage by over 10% in May, while petrol users reduced their driving distance by 8.9%. 

There were also varying reactions based on where South Africans live, with the distance covered by motorists in the Western Cape falling by 15%. 

The Northern Cape followed at 14%, while the Eastern Cape recorded a 10% decline.

Limpopo showed the smallest shift at 2.6%, followed by KwaZulu-Natal at 5.5% and Gauteng at 6.6%.

“As consumers, we can’t control the fuel price, but there are practical ways to reduce the impact of high prices,” Attwell said. 

“Many people are already becoming more deliberate about how and when they travel, whether by combining errands, reducing unnecessary trips, or by making use of delivery services.” 

Inflationary shock

Elevated petrol and diesel prices have begun to impact other parts of the economy, with inflation showing a sharp uptick in April. 

Statistics South Africa revealed that inflation surged to the highest level seen in 20 months, with consumer prices rising by 4% in April. 

The price of Brent crude has climbed around 50% since the US and Israel attacked Iran in late February, effectively closing the Strait of Hormuz. 

The Strait is a key waterway for about a fifth of the world’s seaborne oil and liquefied natural gas.

South Africa’s Reserve Bank, along with its peers, can do relatively little about the inflationary shock coming from the closure. 

The bank cannot drill for more oil, reopen the Strait, or invest in alternatives. All it can do is limit how entrenched inflation becomes and how far it spreads in the economy. 

To this end, the bank’s Monetary Policy Committee raised the repo rate by 25 basis points in May and is widely expected to hike rates again in July. 

However, there is some good news on the horizon, with the potential for a deal between the United States and Iran sending oil prices significantly lower. 

This, coupled with a strong rand, would have resulted in a cut in fuel prices in June, with diesel set to come down by as much as R5 per litre. 

But there is a catch. The decline in petrol prices is not enough to offset the reintroduction of the R1.50 per litre General Fuel Levy. 

This reintroduction is part of the National Treasury’s efforts to unwind its fuel relief, which comes at the cost of around R6 billion in tax revenue every month it is implemented. 

From June, R1.50 per litre will be added back, with the full relief terminating in July, when the remaining R1.50 will be added. 

This will turn the potential cut into an increase for petrol prices and narrow the relief for diesel users.