Not only would diesel prices have increased by 71c/l next Wednesday, but diesel would now be 73% higher year-on-year, which is the largest year-on-year increase ever, T-sec economist Mike Schussler told Engineering News Online on Friday.

This comes as the Department of Minerals and Energy (DME) on Friday announced the latest fuel price increases for June. Diesel would cost R10,80/l inland and R10,66/l at the coast.

“It is certainly not looking good for trucking companies, it is certainly not looking good for the cost inputs for farmers, and it is certainly going to have a second-round knock-on effect through the whole of the South African population,” commented Schussler.

Meanwhile, the retail price of petrol would increase by 50c/l. Unleaded petrol would now cost R9,96/l inland and R9,72/l at the coast.

Econometrix senior economist Tony Twine commented that the petrol price increases were a little higher than he had expected, as Econometrix had not factored in the additional 5c of retail margin, which the DME had approved.

The retail margin was fixed by the DME and was determined on the basis of actual costs incurred by the service station operators in distributing petrol. All proportionate driveway-related costs such as rental, interest, labour, overheads and profit were taken into account.

“What is interesting is that the retailers would still need another 20c to be back in the same proportional position when the resale margin was last adjusted, which was September last year,” said Twine.

He added that government would have to balance this out and said it was possible that the DME could consider a series of partial increases in the retail margin, but that if the oil price, and subsequently the wholesale price of petrol were to come down, the DME could avoid a big increase in the retail margin.

Further, the price of illuminating paraffin had increased by 94c/l, which Schussler said would, along with jet fuel price increases, be a tremendous shock to the South African system. “You are looking at an 87% increase for paraffin, and you can imagine what kerosene or jet fuel is doing right now,” he added.

Looking ahead, Schussler said he expected the oil prices to calm down slightly for a little while, however, he stated that a shortage of diesel worldwide could be problematic.

“There is a shortage of diesel worldwide, from the refinery’s point of view, and we are seeing ever bigger margin increases of diesel above oil. Two years ago it was about $7 a barrel and now it is over $30 a barrel. So not only have oil prices increased, but so have diesel prices, tremendously more so than oil,” he commented.

PUBLICATION: Engineering News
AUTHOR: Chanel Pringle
DATED: 30th May 2008