South Africans can look forward to cheaper fuel prices in the next few months but are warned this trend will not last.
The December fuel prices announced on Monday showed petrol (93 and 95 ULP & LRP) will decrease by 65 cents a litre, diesel (0.05% sulphur) will go down by R2.35 a litre, and diesel (0.005% sulphur) by R2.41 a litre.
This is in line with PwC’s latest Economic Outlook which focuses on the fuel price forecast and states that fuel should, on average, cost less in Q1 2024 (January to March) than it currently does. Based on current assumptions, fuel prices are then expected to slowly start climbing again.
“Our forecasts suggest petrol could cost 0.6% more next year at an average of R23.24/litre while diesel could be 0.6% cheaper at R21.40/litre. This is good news relative to a consumer price inflation forecast of 5.2% for 2024.”
The forecast model estimates the petrol price could decline from an average of R24.13/litre in Q4 2022 to R23.02/litre in Q1 2024 while diesel could ease from an estimated R23.72/ litre to R21.21/litre.
This, the report states, comes after notable declines in both product prices during November and December 2023, off the 15-month high peaks seen in October.
“Based on current assumptions, both petrol and diesel prices are expected to bottom out in Q1 2024 and then slowly increase (on average) during the remaining quarters of 2024 and into 2025.”
However, PwC does not anticipate these prices to reach the high levels seen in the current quarter – not for the next two years, anyway.
“Fuel prices are expected to edge higher next year due to a decline in global oil production that puts a floor under these prices. The US Energy Information Administration estimates that oil production by Opec+ members will fall by 340 000 barrels a day next year to 37.8 million barrels a day.
“On the exchange rate front, the rand is projected to continue its historical depreciating trend in 2024.”
PwC explained that taxes, levies, and duties account for about half (54%) of fuel prices and are often talked about as a possible solution to lowering the cost of fuel. Pending an official announcement on a pricing formula review, the South African Reserve Bank has suggested seven fuel price elements as possible areas for reform.
These actions – and their potential impacts on the fuel price – are:
1. RAF levy: Review the viability of compulsory third-party insurance as an alternative to the RAF. Potential impact – high.
2. Retail margin: Consider transitioning the petrol price to a maximum price, rather than a regulated price. Potential impact – high.
3. Retail margin: Review the entrepreneurial compensation and owner remuneration elements of the benchmark service station. Potential impact – medium.
4. Retail margin: Update the survey underpinning the benchmark service station and/or require mandatory annual disclosure of costs and assets by service stations. Potential impact – low.
5. Basic fuel price: Update the methodology for calculating insurance, coastal storage and ocean loss. Potential impact – low.
6. Basic fuel price: Increase the regularity of basic fuel price updates to every two weeks. Potential impact – low.
7. Transport costs: Publish and review the methodology for calculating inland transport costs. Potential impact – low.
The Mercury