Cost of diesel expected to continue rising throughout 2021

After starting the year with fuel price increases of more than 40c/ℓ for petrol and 55c/ℓ for diesel, the Automobile Association (AA) indicated that it expected the petrol price for both grades to increase sharply by more than 80c/ℓ in February.

The wholesale price of diesel was expected to increase by around 60c/ℓ.

According to the AA, the price of 95 octane petrol would jump from R14,86/ℓ to R15,68/ℓ during the first week of February, and the price of 0,05% and 0,005% wholesale diesel would increase from around R13/ℓ to R13,60/ℓ.

According to Dawie Maree, head of information and marketing at FNB Agriculture, the most significant factor that would determine fuel prices in the coming months was the extent to which demand would return to normal levels.

He explained that the price of Brent crude oil was directed by global economic growth.

“As the world recovers after the COVID-19 pandemic and economies start to grow, demand for oil will increase and thus put upward pressure on prices. This, coupled with a very likely volatile exchange rate, will cause fuel prices in South Africa to rise.”

Maree said the next couple of months could be volatile for the rand, which was expected to trade at between R14,50 to R16,50 against the US dollar.

He said this could largely be attributed to weak local economic growth prospects, the pandemic and the possibility of “more waves” of infection, as well as local and global politics.

Hugo Pienaar, chief economist at the Bureau for Economic Research, said he expected the price of diesel to rise to R14,75/ℓ by the end of the year.

“Given the assumption that the oil price is largely stable this year, rising to US$57/barrel [about R857/barrel] by year-end, with the rand weakening to R15,85/US dollar, the inland petrol price could rise to R17/ℓ by the end of the year. It all depends on the oil price and rand exchange rate,” he added.

The increase in fuel prices would notably be felt by small-scale farmers who did not benefit from economies of scale.

According to Thandokwakhe Sibiya, strategic support executive at the South African Farmers’ Development Association (SAFDA), many small-scale sugar cane producers already farmed on small plots that were not economically viable.

These farmers also tended to be located far from the sugar mills where they had to deliver their crops, which meant they incurred high transport costs.

“When you analyse the cost structure of these farmers, one of the big contributors to farming costs is haulage and transport, contributing about 26% to total input costs.”

Further fuel price hikes would only continue to erode the slim margins for these farmers, he said.