In recent months, the petrol and diesel markets have seen an unusual development. In South Africa, petrol and diesel prices are normally closely aligned when it comes to adjustments at month-end to the various prices – although it is not exactly the same, it usually is within the same realm. That is until recent developments in the oil market which had a direct impact on the difference we are likely to see in the adjustments in the various fuel prices in September.
Oil prices have come down from its highs of $140 per barrel, hovering just below the $100 per barrel mark. The rand has also lost some value due to investors’ flight to the US dollar, but despite the currency losing value, we are still looking at a reduction of least R2.00 in the petrol price, compared to a 90-cent reduction in Diesel in September.
Where does the 110-cent disparity come from?
The graph illustrates the US Dollar per litre for Diesel (orange) and Petrol (white). It is clear to see that normally these are in sync, but there is a clear divergence at the moment. The reason for this is not refining cost or any input cost – it simply boils down to the simplest form of economics: Supply and demand. A lot of market players have bought Diesel in the short term due to the lack of supply, as well as the current energy crisis in the Eurozone as the winter approaches.
Diesel is used in generating electricity as well as being the preferred fuel for machinery for production. With the market scrambling for Diesel surety, supply is king and suppliers are selling Diesel at a premium due to the high demand.
The question then becomes: how long would this anomaly still be in the market? Should the crisis in the Eurozone continue and supply not increase from oil-producing countries, we could see this going on for a while.
In short, we either need a resolution in Russia, or an increase of supply from other countries. While alternatives are being explored, they will take a while to manifest in the market