A fuel price drop of R1.74 a litre for petrol, R1.56 for diesel, and R2.18 for illuminating paraffin represents a second consecutive record drop for South African consumers
It’s good news for cash-strapped motorists returning to the roads today as the Covid-19 lockdown is eased to level 4 – with a second consecutive fuel price drop expected for May. Unfortunately, on the flip side, the savings consumers can enjoy will hurt government coffers and result in billions lost by tax collection, warns the Automobile Association of South Africa (AA).
May 2020 will join April in setting back-to-back records for monthly fuel price drops. This is according to the Automobile Association, which was commenting on unaudited month-end data released by the Central Energy Fund. Against the backdrop of the international oil picture, even the disastrous performance of the Rand versus the US dollar over April barely moved the needle on local fuel prices. The local currency’s average value against the dollar plunged from R16.45 on 26 March to R18.45 just one month later on 28 April, with daily peaks reach in excess of R19 to the dollar.
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‘The Rand has been pummelled by Covid-19 and the Moody’s downgrade to junk status, and yet we are still able to predict record-territory fuel price drops. This goes to show just how severely the world oil price has collapsed,’ says the AA. Petrol is set to drop by around R1.74 a litre in May, with diesel falling by R1.56 and illuminating paraffin a whopping R2.18.
Seen in context, the predicted decreases will result in a fall of R4.00 to 95 unleaded petrol inland since January, and over the same period diesel users are also benefiting with the predicted price now around R3.49 a litre cheaper than it was five months ago. The petrol price was last below R13 a litre in July 2017. In March 2016 petrol cost R11.74 a litre with the price rising to R12.62 a month later. The figures forecast for May 2020 will bring the price of petrol (and other fuels) to levels last seen five years ago.
‘With the massive drop in fuel usage during April revenue from the General Fuel Levy (GFL) – which comprises about 25 percent of every litre of fuel – will also suffer. Considering the annual collection rate of the GFL, government will have lost between R6bn and R7bn in revenue through not collecting this tax,’ says the AA.
The AA warns that the sudden drop in fuel purchases will add further pressure on fuel retailers. ‘With the margins on fuel already so low, and with usage plummeting, we believe many retailers will struggle to stay viable going forward,’ the AA says. ‘It is nearly impossible to predict what might come next in the fuel market. If the ongoing oversupply forces world oil prices further downwards, we might see at-the-pump fuel costs decline to levels last seen a decade ago,’ the AA concludes.