AA predicts drastic increase in fuel price

In a dramatic reversal of April’s chaotic fuel market, fuel prices are set to climb in June. This is according to the Automobile Association (AA) which was commenting on unaudited month-end fuel price data released by the Central Energy Fund.

The Association says that petrol is expected to show a hefty increase of up to R1.18 a litre, with increases of around 22 cents for diesel and 41 cents for illuminating paraffin.

“The global lockdowns under COVID-19 saw fuel demand plummet. The resulting oversupply left storage bunkers full, with the extraordinary outcome that oil prices in the USA briefly dipped below zero,” the AA says.

The Association notes that crude oil prices used to calculate South Africa’s fuel prices had fallen in lockstep with the reduction in demand, but were now inching up as economic activity begins to ramp up on a global scale.

“This is not unexpected, and South Africans should remember that the fuel price is currently around four Rand per litre lower than it was before the COVID-19 crisis hit. Fortunately, the Rand has strengthened during May, which has helped insulate the country from some of the rise,” the AA notes.

The AA also advises that despite the moderate price rise for diesel, motorists may encounter shortages of diesel in the short term.

According to the South African Petroleum Industry Association (SAPIA), “the economy has recovered more rapidly than expected, leading to a dramatic increase in the demand for diesel which refineries are currently not able to meet”.

The AA notes that some rationing of diesel is taking place, but that SAPIA says it expects diesel supply to normalise once both refineries in Durban reach on-spec production, which is anticipated to be at the end of May.

“We advise motorists to be pragmatic and anticipate fuel prices slowly returning to their previous levels over the medium to long term. It would be prudent to budget accordingly,” the AA concludes.