As the month draws to a close and South Africa navigates the COVID-19 storm, fuel prices for May 2020 are set to plummet further still.
With April almost done, the AA has commented on unaudited month-end data released by the Central Energy Fund and back-to-back record reductions in fuel prices are a reality (for April and May 2020).
The COVID-19 pandemic has had adverse effects on the global economy and it’s been a brutal month for the South African Rand value which is averaging at about R18.45 to the US Dollar while the international oil price has collapsed in spectacular fashion.
The AA commented, "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."
As for fuel price reductions for May 2020, the price for a litre of petrol is expected to drop by R1.74 while diesel prices could see reductions of R1.56 per litre. The price of illuminating paraffin is expected to be reduced by about R2.18.
Since January 2020, the price of 93 unleaded petrol (inland) would have been slashed by R3.84 while 95 unleaded petrol (inland) would realise R4.00 per litre reductions. The price of diesel will now be R3.49 cheaper than it was in January 2020. The last time fuel prices were expected to be this low was 5 years ago!
However, on the other side of the coin, the huge reduction in demand for fuel due to the lockdown has meant that the government is losing revenue from the General Fuel Levy (GFL).
"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,” the AA says.
Fuel retailers are also suffering hugely at this time and fuel price cuts aren’t helping them either.
“Many fuel retailers rely on in-store sales to bolster income but that will most certainly also have declined considerably because of the nationwide lockdown. With the margins on fuel low, and with usage plummeting, we believe many retailers will struggle to stay viable going forward,” the AA says.
The AA further adds, "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 or longer. But if demand suddenly increases, the reverse could also happen and prices could spike – although from a lower base," the Association concludes.