‘Fuel breather unlikely to kick-start economic activity’

by | 4 Jan 2022 | Uncategorized

Consumers can breathe a sigh of relief when the lower fuel price kicks in at midnight, but the benefit of cheaper fuel wouldn’t lead to increased economic activity after the holidays, economist Dawie Roodt said on Tuesday.

Minister of Mineral Resources and Energy, Gwede Mantashe, announced on Tuesday that the petrol price would drop by between 68 and 71 cents a litre and diesel by between 67.8 and 69.8 cents a litre. The price of illuminating paraffin will decrease by 95 cents. The prices of all fuels will be adjusted at midnight on Tuesday and are effective from Wednesday, January 5.

According to the Automobile Association, the fuel price drop follows lower net oil prices in December, 

“The rand has strengthened against the US dollar, pulling away from the lows of mid-December when worries mounted over the economic impact of travel bans imposed as the Omicron variant of Covid-19 swept the world. The rand has since clawed its way back to around the R15.88 mark, some 40 cents stronger than its mid-December low,” the AA said.

“Benchmark international oil prices were mostly flat through the first three weeks of December, although they climbed back to above $70 a barrel on concerns over the impact of the Omicron variant,” the AA said. 

However, economist Dawie Roodt said that the latest drop in fuel prices would not have much of an impact on economic activity.

“It will not have much of an impact because we have seen huge increases before, and it (the price) is still high, and the big spending month is now behind us. In January, people are not going to spend money anyway,” he said.

The price adjustment was due to the falling oil price, he added, which he forecast was likely to continue declining, leading to further fuel price drops in the short term.

“The thing is, I think commodity prices are going to continue falling in the coming months, but what we may win in the declining oil price, we will lose to the weakened rand. I believe the petrol price will be much higher in a year’s time and that is because of the currency,” Roodt said.

Out of the cost of a litre of fuel, about R8 was allocated to tax, which he said could be further hiked.

“If I was the minister I would increase the tax on fuel and decrease company tax and income tax because we want economic growth, and to make it attractive for companies to do business in the country,” Roodt said.

The AA added that Omicron was resulting in considerable infection rates in the Northern Hemisphere, leading to the possibility of lower consumer and industrial demand for petroleum products, as seen in the initial waves of Covid-19 in 2020.

 “This could lead to a depressed oil price in the short to medium term. If so, that would bring some relief to South African fuel users. However, this should not distract from the fact that the current fuel prices are still far in excess of what South Africans were paying just a few months ago.”

The AA reiterated its call for a review of the fuel price structure, as well as an audit of the existing prices within the structure.

Source: https://www.freightnews.co.za/article/fuel-breather-unlikely-kick-start-economic-activity