Volatility Reigned – AA 2016 Fuel Price Retrospective

Unleaded 95 petrol cost 45 cents a litre more at the end of 2016 than at the start, with 500ppm diesel up by 21 cents during the year. This is according to the Automobile Association (AA), which conducted a review of fuel price movements during 2016.

“Unleaded 95 started 2016 costing R12.40 a litre, with 500ppm diesel at R10.81,” the AA said.

“The last price adjustment in December saw the year close out with petrol at R12.85 and diesel at R11.02. But the mere figures don’t tell the story of what a rollercoaster year it was for South African motorists.”

At its peak, petrol spiked to R13.34 a litre during July. Diesel reached R11.70 in the same month, with all fuel types affected by negative sentiment following the United Kingdom’s decision to leave the European Union.

The biggest monthly increase for both petrol and diesel came in April, which yielded jumps of 88 cents and 95 cents respectively as increasing international oil prices gave South African consumers a battering despite a firmer Rand. The petrol price increased in five of the twelve monthly fuel price adjustments in 2016, while diesel increased in six of them.

On the upside, August saw the biggest single drop for petrol, as receding oil prices and a more favourable Rand / US dollar exchange rate knocked 99 cents off the price. Diesel saw a hefty price reduction of 74 cents a litre in the same month, but its biggest monthly drop was the 76-cent decline in January.

However, the AA cautioned against using 2016 data to predict fuel price trends in 2017.

“While the supply-and-demand equation will certainly be more important in 2017 with the OPEC production cuts coming on stream, events affecting the Rand’s strength will determine how hard any oil price hikes bite.”

The Association said that the Rand was exposed to numerous unpredictable risks.

“There is, for instance, a school of thought that a ratings downgrade was only staved off in December last year, rather than averted,” the AA commented.

“Internationally, the spotlight will be on a Trump presidency in the USA and the British procedure for exiting the EU. With South Africa having been named as one of the top global risks in 2017 by Time Magazine, the Rand remains vulnerable to risk-averse investors who move capital to perceived safe havens.”

The AA said it considered the major domestic risk to be the perceived abuse of institutions of state for personal gain by senior figures in government.

“South Africa’s faltering economic position means the country is ill-positioned to weather further political scandals. These would have a direct effect on investor confidence and drive the Rand weaker,” the Association said.

“A sharply lower currency in a strengthening oil price environment could make for eye-watering fuel prices,” the AA concluded.