South Africa is on track for a shock petrol price increase in March – here’s why

The price of petrol is expected to increase by R1.24/litre (95 inland) in March according to the latest Central Energy Fund data, one of the steepest monthly increases on record, say economists at Momentum Investments.

In a research note on Thursday (17 February), the group noted that March’s increase comes on the back of a recent surge in oil prices reflecting a risk premium related to attacks on fuel storage facilities in the United Arab Emirates, related conflict in Yemen, and rising fears of a Russian invasion of Ukraine.

“Recent developments in the oil market suggest the peak in oil prices could be higher, Momentum Investments said. Nevertheless, Capital economics notes that Russian oil supply is unlikely to be affected as such the current strife is not expected to have a structural effect on oil prices.

“As such, the current episode is viewed as a temporary shock and oil prices are expected to decline after a few months.”

The Russia-Ukraine crisis

The moves in headline prices in recent days have been driven by two of the market’s biggest geopolitical risks – the potential return of Iranian barrels to the market and political tension around Ukraine.

Russia supplies much oil and gas to the rest of the world – a supply that could be cut off if tensions escalate to the point of an invasion.

Any Russian invasion into Ukraine would almost surely trigger economic sanctions from the US and its European allies. That could lead to oil and gas shortages around the world and, most likely, higher energy prices.

On Thursday, Russian state media cited Moscow-backed separatists as saying Ukrainian forces had violated cease-fire rules overnight. While Russia has insisted that it’s serious about easing tensions – and has repeatedly denied that it plans an invasion of its smaller neighbour – the US says Moscow is still building up troop levels near the border.

“It’s a headline-driven market at the moment, with the market reacting to sensitive news from Eastern Europe and related to the Iran nuclear talks,” said Giovanni Staunovo, a commodity analyst at UBS Group told Bloomberg.

Mineral Resources and Energy Gwede Mantashe has directly attributed the rise in oil prices, and  local petrol costs, to the crisis between Russia and Ukraine.

“We should pay attention to the developments between Western countries and the Russian Federation on the Ukraine matter, in so far as it impacts crude oil prices,” Mantashe said in his debate on the State of the Nation Address address on Tuesday (15 February).

“This could result in huge increases in fuel prices globally and negatively affect local consumers and transport users.”

Although South Africa does not import oil from either country directly, global oil prices are highly dependent on Russia’s actions, Kevin Book managing director at Clearview Energy Partners told the Associated Press.

Russia provides 30 to 40% of Europe’s oil, gas and coal, and in any given year its exports supply 4% to 5% of the world’s energy, he said.

“So what does the world do if you have a cutoff of some significant amount of that sort of 5%?” Book said. “Well, the price goes up everywhere.”

With further reporting by Bloomberg. 

Read: Here is the expected petrol price for March

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