How the price of petrol is determined

In August 2021, the South African government announced a steep rise in the price of petrol – an increase of 91 cents per litre. This will place pressure on consumers, said a representative from the country’s Automobile Association. “Everything is going to get more expensive”. That is because South Africa’s transport system almost entirely depends on petroleum fuels. As this is crucial to the country’s economy, it is important to understand how the government sets these prices.

Fuel pricing

South Africa has limited crude oil reserves. Also, the country’s refineries are not operating at their peak level. Therefore, South Africa is currently a net importer of petroleum products, as it is with natural gas. Accordingly, the international oil price is the main factor that determines petrol and diesel prices in South Africa. It also depends on the strength of the rand. That is because South Africa buys oil in US dollars.

The Department of Mineral Resources and Energy said that these factors were to blame for the August fuel price increase. That is because international petrol price increases bumped up South Africa’s local price by 48 cents, said the department. Furthermore, the rand/US dollar exchange rate added 45 cents to the price.

Price of petrol

The current August unleaded 95 petrol price for inland customers in South Africa is R18.30 per litre. For coastal customers, the price is R17.58 per litre. The current unleaded 93 price for inland customers is R18.11 per litre. On the other hand, coastal customers must pay R17.59 per litre. All these fuel prices represent a more than five per cent increase from their respective July 2021 prices. Furthermore, the price of each petrol type has increased by more than three rand per litre since the beginning of 2021.

Price of diesel

Diesel is an important fuel for South Africa’s commercial sector. In the past decade, its use has grown in the country while petrol’s has remained steady. Diesel remains cheaper than petrol. However, similar to petrol, its price is rising. For example, in August 2021, the government announced a 55 to 56 cents per litre price increase for diesel.

image of petrol station in South Africa

“Petrol station in South Africa” by Dellex (CC BY-SA 4.0)

Fuel regulations

The South African government regulates the retail petrol price. Specifically, the Central Energy Fund (CEF) calculates the price. It does this based on international and domestic elements. The international element is called the Basic Fuel price. This is equivalent to the cost that a South African importer pays to buy petrol from an international refinery, plus the cost to transport this petrol to South Africa. The government then adds the domestic elements to this price. This then determines the final petrol pump price for different regions. These include inland transport costs, oil company marketing margins, in addition to taxes and levies.

As opposed to petrol, the South African government does not regulate the diesel retail price. However, in July 2021, the government announced new regulations for both fuels. Specifically, it banned the sale and dispensing of petrol and diesel into containers. The government’s goal was to stop panic buying and hoarding of these fuels. This came after the largest crude oil refinery in the country shut down due to unrest in KwaZulu-Natal.

Petrol price changes in South Africa

The government’s Central Energy Fund (CEF) changes the retail petrol price on the first Wednesday of each month. As mentioned above, two factors are mostly responsible for these price changes. Firstly, the price of oil on world markets. Secondly, the strength of the rand against the US dollar. Once a year, the South African government also adjusts other factors that influence the petrol price. These include taxes and levies. Therefore, the Automobile Association is currently demanding a reduction in these. This would help to lower petrol prices, it says.