- High fuel prices in South Africa, coupled with a heavy dependency on oil imports, threaten to trigger economic fallout in the country.
- The Automobile Association (AA) predicts an increase in petrol, diesel, and paraffin prices in October.
- If these increases materialize, they could drive fuel prices to levels last seen in July 2022, adding to the financial strain on citizens already struggling with economic challenges.
The energy crisis gripping South Africa is set to intensify as rising global oil prices, coupled with a heavy dependency on oil imports, threaten to trigger economic fallout. The expected announcement of fuel price increases for October will further strain the country’s economy.
According to data from the Central Energy Fund (CEF), the Automobile Association (AA) has warned South Africans about the impending economic hit starting in October.
South Africa’s oil demand amid increasing fuel prices
Based on current data, the AA projects a significant increase in fuel prices, with petrol prices expected to rise by approximately $0.064 (R1.20) per litre and wholesale diesel prices set to increase by $0.11 (R2) per litre. Illuminating paraffin is slated for a hike of $0.098 (R1.84) per litre.
The AA has cautioned that if these substantial increases materialize, they will drive fuel prices to levels last seen in July 2022. As a result, the financial woes of South African citizens already grappling with economic challenges will intensify.
“The higher fuel prices will inevitably lead to higher prices at the till, which will be a blow to many who are already experiencing financial distress,” the AA stated.
The primary driver behind these impending increases is the surge in international oil prices, which have witnessed a significant uptick since August. According to the CEF’s data, up to 80 per cent of the projected petrol price increase and up to 86 per cent of the expected diesel price hike can be attributed to these soaring oil prices.
While the weakening Rand/US dollar exchange rate plays a role, its impact currently pales compared to the surging oil prices’ effect.
“The outlook is bleak, although it has improved slightly since the beginning of the month. With two more weeks before the official adjustment for October is made, South Africans hope the downward trajectory continues. Although increases are now a certainty for October, the question will be how much fuel prices will ultimately rise,” the statement concluded.
South Africa’s reliance on oil imports
South Africa’s heavy reliance on oil imports exacerbates the impending fuel crisis. The country spends approximately $9.6 billion (around R150 billion) annually on importing crude oil and petroleum products, representing a significant portion of the nation’s total imports.
This heavy dependence on oil imports substantially negatively impacts the country’s balance of payments and poses a serious risk to its energy security and sovereignty.
In contrast, South Africa possesses significant prospective oil resources estimated at 27 billion barrels. To put this in perspective, Angola, a regional oil-producing nation, has approximately 7 billion barrels of oil reserves.
However, South Africa has yet to exploit these resources fully, leaving it heavily reliant on imported oil. The country is spending some $9.6 billion (~R150 billion) on importing crude oil and petroleum products per annum (representing some 15 per cent of the country’s total imports).
The global oil market also plays a crucial role in South Africa’s predicament. Recent reports suggest that global oil inventories are expected to fall in the fourth quarter due to Saudi Arabia’s extension of output cuts.
This has led to forecasts of rising international oil prices, with the Energy Information Administration (EIA) projecting an average Brent crude price of $93 per barrel during the fourth quarter, up from the $86 average in August.
Non-OPEC supply to dominate world supply
According to the International Energy Agency’s oil market report, global oil supply plunged by 910 kb/d to 100.9 mb/d in July. In July, a sharp reduction in Saudi production saw output from the OPEC+ bloc fall 1.2 mb/d to 50.7 mb/d, while non-OPEC+ volumes rose 310 kb/d to 50.2 mb/d.
Expert projections indicate that global oil output will expand by 1.5 mb/d to a record 101.5 mb/d in 2023, with the US driving non-OPEC+ gains of 1.9 mb/d. Next year, non-OPEC+ supply will dominate world supply growth, up 1.3 mb/d, while OPEC+ could add just 160 kb/d.
World oil demand is scaling record highs, boosted by solid summer air travel, increased oil use in power generation, and surging Chinese petrochemical activity. Global oil demand will expand by 2.2 mb/d to 102.2 mb/d in 2023, with China accounting for more than 70 per cent of growth.
The EIA, meanwhile, raised its 2023 world oil demand growth forecast by 50,000 bpd to 1.81 million bpd. The agency cut its oil demand growth estimate 2024 by 250,000 bpd to 1.36 million bpd.
“High oil prices combined with uncertain economic conditions could lessen global demand for petroleum products through 2024,” said EIA Administrator Joe DeCarolis.
South Africa’s oil challenge is a stark reminder of the interconnectedness of global energy markets and their impact on individual nations. While global factors are primarily responsible for the current predicament, domestic solutions are equally critical.
Oil demand vis-a-vis motor sales data
According to figures released by Statistics South Africa, in July 2023, South Africa experienced a 2.0 per cent year-on-year increase in motor trade sales, measured in constant 2019 prices. The most significant contributors to this growth were sales of accessories, showing an 8.0 per cent increase, and fuel sales, which increased by 7.7 per cent. Fuel sales, in particular, played a substantial role, contributing 2.0 percentage points to this overall increase.
However, it’s worth noting that seasonally adjusted motor trade sales dropped by 0.4 per cent in July 2023 compared to June 2023. This followed previous month-on-month changes of 1.3 per cent in June 2023 and 1.0 per cent in May 2023.
In contrast, over the three months ending in July 2023, seasonally adjusted motor trade sales increased by 1.8 per cent compared to the previous three months.
Looking at a broader perspective, motor trade sales over the three months ending in July 2023 increased by 2.6 per cent compared to the same period in the previous year, July 2022.
Vulnerability of the South Africa economy
Notably, the key drivers behind this growth were accessories sales, which surged by 8.6 per cent, contributing 1.7 percentage points to the increase. New vehicle sales also played a significant role, increasing by 6.5 per cent and contributing 1.6 percentage points, along with fuel sales, which increased by 5.2 per cent and contributed 1.4 percentage points to the overall growth in motor trade sales.
While this growth in motor trade sales is promising, it’s crucial to consider the broader implications. As South Africa faces the looming challenge of its oil demand potentially outstripping supply, the increased fuel sales underscore the nation’s heavy reliance on oil. This dependence highlights the vulnerability of the South African economy to global oil price fluctuations and supply disruptions.
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