Petrol to rise again as rand weakens

January 27, 2009

Petrol to rise again as rand weakens

Siseko Njobeni
Energy Affairs Editor
BUSINESS DAY
Posted to the web on: 27 January 2009

THE retail price of petrol is set to be increased next week, bringing to an end several months of back-to-back decreases, according to economists.

The minerals and energy department last increased the petrol price in July last year. The department earlier this month decreased petrol, diesel and paraffin by large margins because of relatively low international oil prices.

But daily figures from the Central Energy Fund showed there had been an underrecovery in the price of petrol since earlier this month, raising the prospects of a price hike. From January 2 to Friday last week, petrol had under- recovered by more than 42c/l.

However, low-sulphur diesel and the ultra-low sulphur diesel overrecovered by more than 13c/l and 14c/l, respectively. Illuminating paraffin also over- recovered by more than 23c/l.

An underrecovery happens when consumers pay too little for fuel products on a particular day, and an overrecovery is when too much is paid.

Based on the underrecovery, the retail price for petrol was likely to increase by 43c/l, Doret Els, an economist at Efficient Group, said yesterday. But the wholesale price of diesel and paraffin would continue to fall, she said. The weaker rand also contributed to the increase.

The retail price of petrol is based on, among others things, the oil price and the R/$ exchange rate. Unlike in the past few months, when the low crude prices outweighed the negative effect of a relatively weak rand, the recovery of the oil price created conditions conducive to a petrol price hike.

�Because of the weaker rand, whenever there is a slight movement in the oil price, we feel it,� Els said.

She said the weaker rand and the recovering oil prices did not have the same effect on diesel because the price adjustments also depended on demand and the global economic meltdown had resulted in reduced demand for diesel, she said.

Chris Hart of Investment Solutions said that despite the petrol underrecovery, consumers were unlikely to face big increases.

�We will find that fuel prices will remain at these levels for a while but the big increases (of the past few months) have come to an end. There is not much downside to the international oil price,� Hart said.

He expected the rand to recover towards the end of this year. �But we will also see a recovery in the oil price, so one will offset the other.�

BUSINESS DAY 27/1/09

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