PETROL AND DIESEL PRICES
Fuel levy will be ramped up in budget, economist predicts
The higher fuel levy will have ripple effects throughout the economy and for inflation in general
Fuel prices are expected to rise sharply in the next few months, not necessarily because of exchange rate fluctuations or a spike in the oil price but because Finance Minister Pravin Gordhan is likely to announce a huge hike in the general fuel levy in his budget, Efficient Group chief economist Dawie Roodt predicted on Thursday.
On Wednesday, the price of petrol went up 51c and that of diesel by 40c. According to the Automobile Association, the increase was likely to be the first of a series during 2017.
If the fuel levy goes up as predicted, it would have ripple effects throughout the economy and for inflation in general.
Oil prices rose on Thursday after Saudi Arabia, the world’s biggest oil exporter, started talks with customers about a reduction in crude sales to support a plan by the Organisation of the Petroleum Exporting Countries (Opec) to reduce global supply. Opec promised in November to cut output to prop up prices. Brent crude oil was up 50c a barrel at $56.96 by 2.40pm in London and US light crude was up 45c a barrel at $53.71.
Three-quarters of the participants of the Singapore Exchange indicated in a survey that they believed crude oil prices would remain in the $50-$60 a barrel range in 2017.
Analysts at Goldman Sachs expected Brent prices to peak at $59 a barrel by mid-2017, noting that even if Opec reduced production as promised, there was "only moderate oil spot price upside given the expected supply response to higher oil prices and new production".
Roodt estimated that in 2017 global crude oil prices would average just more than $60 a barrel, which would not have a major effect on the local fuel price. But exchange rate fluctuations could alter the picture.
A 30c-40c increase in the domestic fuel price could be expected in February because of past underrecoveries but the real hit would be in April when the general fuel levy increase announced in the budget would be implemented. Roodt forecast a R1/litre increase in the levy.
There was a 30c increase in the 2016-17 budget, which added R6.8bn to tax revenue and brought total revenue from the general fuel levy to R64.5bn.
Gordhan announced in his medium-term budget policy statement in October that the Treasury would have to raise R28bn more in taxes in 2017-18 if the government were to sustain its spending plans.
A R1/litre hike in the fuel levy would make a substantial contribution to filling this hole. Roodt noted that it was a broad-based tax that was cheap to collect and not very visible.
The key question for Opec members in setting the price of crude oil was to determine the level at which it became competitive for shale gas producers in the US to re-enter the market, thereby pushing up supply and lowering prices, he said.
Opec would want to set the oil price below this level to keep the frackers out of the market but high enough to generate good returns. "My suspicion is that level is not much higher than $60, which will not mean sharp rises in the domestic fuel price," Roodt said.