AA warns of a ‘catastrophic’ surge in fuel prices.

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The Automobile Association has predicted a “catastrophic” increase in petrol prices in November. According to its projections, a price of R20 per litre for petrol before the end of the year is “reasonable,” it stated in a statement on its website on Monday.

The AA does not regulate or alter fuel prices in South Africa, but it does post two monthly fuel price outlooks. The Department of Mineral Resources and Energy calculates and adjusts fuel prices on the first Wednesday of each month.

But based on its interpretation of recent exchange rate and commodities data, the AA said it was predicting “fuel price hikes of catastrophic proportions” at the end of October.

“The current picture is showing petrol up by 99 cents a litre, and diesel and illuminating paraffin higher by a whopping R1.42 a litre. This will push 95 ULP inland above R19/l (close to R19.30/l), and R17/l for diesel,” the AA said.

“Taking this potential increase into account, the price of a litre of fuel inland (95 ULP) will have increased from R14.86/l in January to R19.30/l in November – a 30% increase over 11 months.” It went on to say that if the AA’s predictions come true, the increases in diesel and illuminating paraffin would be “the greatest in South African history.” It did emphasise, though, that its forecast was still based on data from the previous half-month.

The AA based its projection on the price of brent crude, which has broken through the US$85 per barrel mark. “[T]he basket of oil prices used to calculate South Africa’s oil price are following Brent higher. We note the concern this is generating in the USA, where President [Joe] Biden was reported to have called on the OPEC+ cartel to increase oil output to stabilise prices.

This has not generated a response from OPEC+, and our view is that a response is not likely, since the current price pressures are beneficial to the cartel’s members,” the AA said in its statement.

The AA also mentioned the influence of the exchange rate, stating that the strength of the rand was a major factor in determining petrol prices, and that South Africans were “paying at the pumps for poor governance.

“Diesel and paraffin customers experienced price increases in October, which the DMRE ascribed to rising oil prices and the rand-dollar exchange rate. The price of gasoline has decreased marginally.

Story by : Norvisi Mawunyegah