Thread: Fuel: Prepare for R16 a litre

Petrol is racing towards R16 a litre - but already people are being forced to make fundamental lifestyle changes.

Tony Twine, an Econometrix economist, told The Sunday Independent that the soaring petrol price - it went up by 50c a litre on Tuesday, bringing the price of unleaded fuel to R9,96 a litre - would result in drivers swapping gas guzzlers for fuel-efficient vehicles, going out less and curtailing the use of the family car.

"The petrol price hikes could drastically change the way people live," he said.

There was further bad news for consumers on Wednesday as the petrol price spirals up towards another psychological mark. The Central Energy Fund warned of an increase next month of 70c a litre if the oil price and the exchange rate remained at current levels.

'The petrol price hikes could drastically change the way people live'

On Friday, the price of oil hit a record of nearly $139 a barrel, amid reports it could reach $150 by July because of rising demand and political tension in the Middle East.

Twine said that, based on recent indicators, Econometrix had compiled a number of scenarios, one of which suggested that the petrol price might peak early in the third quarter of next year.

In another scenario, the effect was considered of the petrol price continuing relentlessly to $200 a barrel by the end of the year and holding at that level until 2010. He said that, if the price of oil hit $200 a barrel, and assuming the exchange rate was R8,50 to the dollar, a litre of petrol would cost R16.

"It all depends on where the oil price is going. If it improves, the price could be $60 a barrel, which will result in fuel costing about R6 a litre," he said.

But, globally, economists have warned that oil might reach $200 a barrel in the next six to 18 months. The price of the benchmark light sweet crude oil has increased rapidly in the past six months since breaching $100 a barrel early in January.

'We can expect fuel to cost R16 a litre by February'

Argun Murti, a Goldman Sachs energy strategist, told the BBC that oil might soar to $200 a barrel in six months as supply struggled to meet demand. Surging demand was increasingly likely to create a "super-spike", past $200, in six months to two years, he said.

Oil prices have risen by 25 percent in the last four months and by 400 percent since 2001.

South African consumers have been feeling the effects of the rising oil price in the form of increases in food and transport costs, higher inflation and the recent spate of interest-rate hikes by the Reserve Bank.

"It takes a long time to measure how society responds to fuel price hikes but there is no doubt that people are adjusting their spending.

"Whereas normally a family would go out to a movie, they now might save the money for the week's fuel, or, if they previously drove out for a meal, they might get a pizza delivery," Twine said.

"People learn quickly how to accommodate the fuel-price shocks."

Goolam Ballim, a senior economist for Standard Bank, said the sudden increases in fuel prices would compromise lifestyles.

"Individuals do not see similar [rapid increases] in their income but there is a marked increase in their staple costs. It means one's appetite for luxury items will diminish," he said. "People will be more cautious of spending on household items they can do without."

Ballim said the scarcity of food and fuel, both of which have been subject to higher-than-inflation increases, would affect the consumption of household items.

"Relief [for consumers] and revival of the economy is only going to happen in 2010, so the tough times are going to last until summer next year," he said.

Buyelwa Sonjica, the minerals and energy minister, said in parliament on Friday that she would ask Trevor Manuel, the finance minister, to help consumers combat the rising fuel price through tax cuts.

She said it was difficult to predict how high the oil price would go but these were "extraordinary times that required extraordinary solutions".

"We have been watching, with alarm, the consistently upward movement of the price of crude oil," she said.

The South African Petroleum Industry Association said petrol sales declined by 0,9 percent this year.

Peter Morgan, the chief executive of the Fuel Retailers' Association, said the owners of filling stations affiliated to the association were alarmed that so few motorists were clamouring to fill up just before the price went up by 50c at midnight on Tuesday.

"For the first time, we did not see a flood of motorists waiting to fill up. It tells us that less people are filling up, and those who do frequent garages are only putting between R200 and R300 of fuel in the tank," he said.

"If you look at the price increases between February last year and this year, we can expect fuel to cost R16 a litre by February."

Morgan said garage owners throughout the country faced the threat of closure because of declining profits from fuel.

"Many are surviving only because of their convenience stores," he said.

He said rising fuel prices might prompt the government to implement its much-vaunted plans to encourage motorists to use lift clubs while efficient public transport systems were being created.

General Motors SA said this week that it was reviewing the future of the Hummer, the iconic American gas-guzzler.


Sunday Independent