Record-high petrol prices made official in South Africa

Motorists will be paying record-high prices for petrol and diesel in South Africa in October due to rising oil prices and a weakening rand. 

The combination of the two factors has created a perfect storm for fuel prices, with little relief for consumers. 

South Africa’s Department of Mineral and Petroleum Resources attributed the price hikes largely to a sharp rise in oil prices. 

The average Brent Crude oil price rose from $87.89 to $101 in the period under review due to limited supply from the Persian Gulf. 

This has been compounded by sporadic disruptions in the Bab al-Mandeb Strait between Africa and Arabia, which is a key alternative to the Strait of Hormuz. 

The Bab al-Mandeb Strait has been used by Saudi Arabia in particular to get its oil to international markets via the Red Sea. 

While these disruptions have come under control in the past week, oil traders are concerned about further escalation and are pricing in higher futures prices. 

This has been driven by the deployment of another US aircraft carrier to the region, along with 10,000 Marines, to give US President Donald Trump more options to strike Iran. 

Rising oil prices, coupled with a weaker rand, created the perfect storm for petrol and diesel prices in October. 

The impact was not equal on all types of fuel, however, as 95 and 93 octane petrol had different prices in October. 

The changes to petrol and diesel prices can be seen below –

• Petrol 93 – increase of R3.12 per litre
• Petrol 95 – increase of R3.33 per litre
• Diesel 0.05% – increase of R2.84 per litre
• Diesel 0.005% – increase of R3.24 per litre

These increases will bring all fuel types to a new record high and take effect from 7 October. They will also have significant implications for inflation.  

Stanlib chief economist Kevin Lings expects inflation to rise beyond 5% when the latest data is released. 

Before this increase comes into effect, higher prices have already hit South Africa hard. Data from Codera shows diesel prices are the largest driver of inflation. 

Diesel prices are 30% higher than they were a year ago, with petrol up 18%. These are two of the biggest drivers of inflation in South Africa.

Lings believes that central banks have played it too cautiously and were overly hopeful that the conflict would be resolved quickly. 

Now, the war in Iran is into its eighth month, and oil prices are rising instead of falling. This will have significant consequences for households and economic growth. 

“The Reserve Bank revised up its inflation forecast for this year. It is clear that they have become a bit more anxious about second-round effects,” Lings said. 

“They think they need to hike interest rates to try and control the potential pass on or the second-round effects.”

The Reserve Bank has made it clear that they are not comfortable with inflation at 4.4%, with Lings believing it will go above 5%. 

“They are absolutely determined to get inflation much closer to 3% and anchor it down there. They want to break the psychology of the 3% to 6% range,” Lings said.