Siseko Njobeni
5 January 2009
Johannesburg — SOUTH Africans are set to benefit from more fuel cuts as the global oil price is likely to remain depressed for at least the first half of this year, according to economist Chris Hart.
The minerals and energy department announced a number of fuel price reductions as the oil price plummeted on weak global demand outlook.
The department said on Friday the retail price of petrol would decrease by 134c-137c a litre this Wednesday, depending on the grade. It said the wholesale price of low-sulphur diesel 0,05% would decrease by 167,95c/l, while the ultra-low sulphur diesel 0,005% would decrease by 165,95c/l.
The wholesale price of illuminating paraffin would fall by 175c/l, the department said.
After Wednesday's fuel price adjustments, the retail price of 95 octane petrol will be R5,77/l and 93 octane petrol will be R5,82/l. Other than the low oil price, a relatively stronger rand also contributed to the falling fuel prices.
According to the department, from November 28 last year to last Thursday, the average rand-dollar exchange rate was R9,95, compared with R10,18 in the previous corresponding period.
Hart, chief economist at Investment Solutions, said yesterday he expected a rebound in oil prices towards the end of this year. The first half of this year would, however, continue to see low oil prices amid weak economic growth in developed countries. "Low oil prices will stay for the duration of the first half of this year. There will be adjustments here and there, of course," Hart said.
Economic growth in emerging markets would drive the recovery of oil prices.
He said investors "looking for yield and growth" would switch from developed countries into emerging markets.
But Fuel Retailers' Association CEO Peter Morgan said yesterday he expected the oil price to rebound sooner.
Morgan said oil prices would start to increase because of lower supply as oil producers cut production.
The Organisation of Petroleum Exporting Countries announced several production cuts last year to halt the slide in oil prices.
The crude oil price plummeted last year from a record high of more than $147 a barrel to less than $40 a barrel. The organisation last month announced a record production cut of 2,2-million barrels a day.
Morgan said the production cuts could put the brakes on the back-to-back fuel price decreases. "For instance, we are yet to see the impact of the December cut in production. So the question to ask is: how long will the fuel price decreases last? We may start to see fuel price increases either in March or April," Morgan said.
Commenting on Wednesday's fuel price decreases, he said: "This is great news for the industry. As you know, our retail margin is fixed in cents a litre. So when the price goes down, people buy more petrol, which is good for us. On the other hand, when the fuel price goes up, people cannot afford to buy more and our margins come under pressure," Morgan said.
As a volume-based business, the fuel retail sector's profitability depended on sales at service stations, he said.
According to the association, several fuel retailers were teetering on the brink of closure after last year's fuel price increases.
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