Oil Bonanza Coming To An End, Expect Petrol Price Increases Next Month

FEBRUARY 4, 2015

The oil price bonanza enjoyed by mostly motorists over the past few months could be coming to an end. This after economists suggested that oil prices could bounce back to $65, $70 a barrel soon - the price is already strengthening in February to above $50 a barrel.

While speaking at a breakfast meeting in Pretoria on Tuesday, Econometrix director and chief economist Dr Azar Jammine, said collapsing oil prices had seen the cost of domestic fuel come down by around 30% from a year ago.

“But it’s not going to stay that way,” he warned.

“The petrol price will go up by 40c, 50c next month. So enjoy February and the low prices for the moment.”

Abdullah al-Badri, secretary general of Opec, echoed Jammime’s observations suggested that prices had "reached a bottom" last week and predicted a rebound "very soon".

The initial increases in the price of oil last Friday came after a report showed that 94 US oil rigs and 11 Canadian oil rigs were taken offline in the past week, suggesting that US output will fall.

US gas consumption has also picked up in recent weeks, indicating that demand is responding to lower prices.

Negative impact of low oil prices

While falling oil prices aided in bringing down inflation and putting more money into consumers’ pockets, it also had a negative impact, noted Jammine.

In 2014, South Africa’s oil imports were up 16.2%, while mineral exports were down 0.5%.

Oil was not the only commodity facing difficulty, said Jammine, with global demand for other commodities, such as iron-ore, mined in South Africa, also depressed.

“As much as we are benefiting from oil prices, we are losing out because other mineral prices are also low. It’s not a one-way street.”

Since many African economies, especially Nigeria and Angola, are dependent on oil exports, the fall in oil prices means they buy less of South African exports, he said.

Ford Motor Company of Southern Africa (FMCSA) president Jeff Nemeth expected exports from FMCSA's Pretoria plant to Nigeria and Angola, two of Ford’s biggest markets in the region, to decline in 2015 compared with last year.

Jammine added that South Africa was increasingly dependent on the African market, with the country's 2014 exports to the rest of the continent at 30.5% of total exports, almost overtaking exports to Asia, at 30.9%.

In 2013 exports to the rest of Africa was at 28.6% of total exports from South Africa, with Asia at 32.2%.

South Africa’s economy was expected to grow by 2.3% in 2015.

Jammine added that the South African government could look at increasing the fuel levy to fund its income gap, rather than increasing value-added tax or personal tax.

He said a 56c/l increase in the fuel levy would earn Treasury an additional R12-billion to R15-billion a year, with the blow softened by lower fuel prices.