Picture: ISTOCK
Picture: ISTOCK

Motorists, already reeling from successive fuel price hikes, are likely to experience more nasty surprises in the next few months.

Some estimates are that the oil price will increase from $80 a barrel to $100 before the year is out, heaping more misery on already stretched consumers. 

The persistently high price of oil is not just a concern for South Africans though, but the global economy as a whole. 

Steady global economic growth, forecast by the World Bank to expand 3.1% in 2018, will continue to support demand for oil, which is expected to imminently break through a historically significant peak of 100-million barrels a day.

The drivers of the price are likely to be on the supply side, where political risks for oil-producing nations continue to mount. 

Azar Jammine, director and chief economist at Econometrix, said the trouble began a few months ago after Saudi Arabia and Russia initially cut production to bring the oil price back up from lows of $28 a barrel. But since then the two have been reluctant to increase production in order to bring prices down, claiming it would jeopardise longer-term price stability.  To make matters worse there were supply disruptions in other oil-producing nations.

Venezuela’s oil production, like its economy, is in ruins. From being a significant producer of 3-million barrels of oil a day, its daily output is now closer to 1-million barrels. Angola’s production has dropped from
2-million barrels a day to 1.4-million due to red tape.

“But the big swing factor was [US President] Donald Trump’s decision to impose sanctions on Iran, the second-largest producer in Opec,” Jammine said. Fears over this caused the oil price to increase to $85 a barrel, but it fell back when it appeared the sanctions may not be as severe as first anticipated.

But now it is tension over the  disappearance of prominent Saudi Arabian  journalist Jamal Khashoggi that could further stoke oil prices. 

Khashoggi, a critic of the Saudi government and a US citizen, went missing from the Saudi consulate in Istanbul earlier in October and Trump has threatened severe punishment if it is found the journalist was killed there.

The Saudi nation said on Sunday it would respond to any action against it with a larger one, and emphasised that it plays an “effective and vital role” in the world economy. This is being interpreted as a veiled threat to reduce oil production because that is the leverage Saudi Arabia, the world’s largest oil producer, has in the global economy.

“It’s unprecedented,” says independent economist Jeremy Wakeford. “For decades the Saudis have been very careful about what they say about oil prices.”

Although Opec is widely viewed as a cartel, it has always maintained its role was to balance the oil price in support of the global economy and not to use its control over oil as a weapon, Wakeford said.

To spike prices is not in the Saudis’ interest either, he said. “They want to keep the world addicted to oil, but they do try and find the sweet spot for oil prices.”

But even before the tensions between the US and Saudi Arabia emerged as a driver of oil prices, a Bank of America Merrill Lynch economist said in a note that higher oil prices seem inevitable and $100 per barrel “is easily within reach”.

However, Jammine warned against undue panic.

“There is no guarantee the price of fuel, or oil, will continue rising,” he said.

And SA consumers would anyhow do better to watch the exchange rate than the oil price, according to Wakeford.

“The big increase in the petrol price this year [2018] was determined by the exchange rate and the crude oil price. Of the two, the weakening of the exchange rate has been the more significant one … 65% of the increase in the petrol price is because of the weakening rand.”