October 2019 will bring the third month of petrol price increases in a row and will see many South Africans tightening their belts as the hike’s knock-on effects hit their grocery bills, too. But what causes the petrol price to increase? Find out…
What Influences the Price of Fuel?
The cost of fuel is extremely sensitive to global and internal affairs and subject to change almost at the drop of a hat. Unfortunately, that means the cost of living is, too, as petrol prices dictate the cost of many foods, transport and travel costs, and even the price of clothing, and so impacts both the consumer and the business owner. 2019 Has seen a considerably volatile cost of petrol and diesel, with many events and factors seeing motorists and petroleum users filling up for more.
Oil Production Around the World
South Africa does not produce any of its own oil and so, like many countries around the world, relies on big oil producers like Saudi Arabia, Iraq and Russia to obtain most of their oil. This means that the oil production of these countries can influence the price we pay for petrol. Overproduction can cause fuel prices to plummet, while a strategic reduction in production can bring the price of crude oil up again. Institutions like the Organisation of the Petroleum Exporting Countries (OPEC) often arrange the amount of oil produced by their member countries, thus controlling the cost of fuel.
Political Factors Impact Petrol Prices
Politics plays a major role in the price of petrol; everything from a president’s Twitter page, to politically-fuelled wars, can change the price of petrol. The strain on international relationships between countries can also take its toll on oil prices – 2019 alone has seen much conflict in the Persian Gulf, specifically the Strait of Hormuz which is an international oil chokepoint, with numerous oil tanker bombings and attacks. Recent bombings have once again had an impact on the price of oil on a global scale.
June 2019 saw the implementation of a Carbon Tax Bill in South Africa, which is another type of political factor that influences the price of fuel. Like the Road Accidents Fund, this policy increased the price of petrol and will factor in the cost of fuel going forward.
Exchange Rates and the Petrol Price
The exchange rate also has an influence on the price of petrol, in a number of ways. Firstly, commodities like oil are usually priced in US Dollars, and if the exchange rate between the Rand and the US Dollar is poor (i.e. a strong Dollar against a weak Rand), motorists and petroleum users will feel the pinch. Import and export costs will also factor in oil prices as higher costs will increase the price of importing oil, specifically in countries like South Africa which get its oil primarily from Angola and Nigeria. This fuel cost element has strong ties to political factors, with political changes often causing a rise or fall of exchange rates.
Partner with Limitless World Petroleum
Limitless World Petroleum is a Level 1 B-BBEEE contributor and remains industry experts since its establishment in 2015. We keep our eye on industry movements so you don’t have to, and can provide businesses with fuel products at tailored costs. Get in touch for a personalised quote today!
Add a Comment