Why is South Africa so vulnerable to petroleum supply issues and global fuel price trends?

Global fuel market dynamics play an enormous role in determining fuel prices, says the writer. Global fuel market dynamics play an enormous role in determiningfuel prices.Supply and demandremains very relevant in what the (global) customer is prepared to pay for a barrel of oil, as well as the perceived shortage that drives a buying spree and thus the price for a barrel. Secondly, as oil is primarily bought with US Dollars – thevalue of the Randagainst the Dollar plays a further (in our case) negative role in resulting in more expensive fuel at the pump.

Unfortunately, most petroleum products (crude oil and refined petroleum products) consumed in South Africaare imported, and this directly results in the domestic fuel cost either rising or falling. The March increase was primarily caused by the increasing global oil prices, geopolitical concerns, and the growing instability in the global supply of energy networks. The political turmoil in major oil producing countries has now caused increased volatility to the market, which has led to worries about possible interruptions to the major distribution and transportation routes.

Oil markets typically react quickly to geopolitical risks, pushing crude prices higher and driving up the cost of refined fuel products downstream. For an economy like South Africa that imports oil, the outcome is often inevitable: higher domestic energy prices. Unfortunately, the fuel price increase does not end with the consumer at the pump .

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Once fuel prices increase, the cost of moving goods from agricultural / mining / production sites to manufacturing / processing / distribution centres and finally to retailers is exposed to these input price increases. Road freight logistics plays a crucial role in the long-distance moving of goods among ports, factories, warehouses, and retail locations. These will all feel the effect of increases.

Companies need to remain financially viable, and thus transport companies must choose whether to increase their rates (by a variety of factors of either full fuel price increase or a percentage thereof), or whether they have the financial reserves to withstand the increases. The latter will place pressure on cashflow and reserves. Rate adjustments are often inevitable due to the recurring fuel price strain, even if some transport operators may temporarily withstand the cost to preserve contracts and relationships with clients. The fuel price increase in March illustrates how vulnerable the country’s transport sector is to international energy trends – with some really frightening figures being bandied about for April – should the current trajectory of increases and Rand weakness continue.

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