Locally, diesel dominates the market as a fuel source used in transportation and energy generation. The price of diesel has an impact across the board. Consequently, there is a need to predict the future price of diesel. However, this is not a straightforward task. In this article, we unpack the tools and knowledge required to estimate the future price of diesel.

Covered in this article:

Import of crude oil
Main drivers of energy and fuel prices locally
Why diesel price prediction is difficult
Saving on diesel cost

According to a long-term study of market trends in fuel consumption produced by the then Department of Energy between 2007 and 2016, the consumption of petroleum declined by an average of 0.2% year-on-year during the study period, while the consumption of diesel grew by an average of 3% year-on-year during the same period.

Imports

The shutdown of the 120,000 barrel-a-day Enref refinery in Durban and a lack of feedstock for state-owned PetroSA’s gas-to-liquids plant in Mosselbay have all affected refining capacity in South Africa. On top of this, Sapref, the country’s biggest petroleum manufacturing plant, stopped operations as it awaits a sale. Because of these factors, South Africa has seen an increase in diesel imports in recent years.

Global issues

We have recently witnessed a steady increase in demand for crude oil coming out of the recent pandemic followed by a sharp drop in supply on account of Russian crude oil and products being removed from the market.

With the European Union's sanctions against Russia due to its invasion of Ukraine, market participants have been stockpiling diesel for use in heating, equipment and emergency backup systems. 

Main drivers of energy & fuel prices locally

The government regulates wholesale margins and controls the retail price of petrol. South African petroleum prices are regulated, based on import parity price formulas. This means that the domestic price is influenced by the supply and demand for petroleum products in international markets, combined with the Rand/US Dollar exchange rate. The factors relevant to South Africa are linked to global trends but centre mainly around four variables:

Transport and storage costs

South Africa has little control over the transport costs of crude oil to one of its refineries. These charges are also added to consumers’ final price for diesel at the pump.

Refining processes

Diesel fuel is heavier and less volatile than gasoline, which makes it simpler to refine from crude oil. Because of the global impact on base oil pricing, the refining process and costs involved have gone up, further blurring the ability to predict diesel pricing.

Local legislation

The industry is regulated by the South African government’s Department of Mineral Resources and Energy which, in turn, is monitored by a Parliamentary Portfolio Committee. The National Energy Regulator of South Africa (NERSA) is also responsible for regulating the petroleum pipeline industry under the provisions of the Petroleum Pipelines Act (Act No. 60 of 2003). 

Taxation

The current fuel tax regime in South Africa applies to petrol, diesel and biodiesel, and is based on volume (per litre) to help achieve various policy objectives. Petrol, diesel and biodiesel are classified as fuel levy goods and zero-rated for value-added tax (VAT) purposes.

Why diesel price prediction is difficult

From production to delivery at the pump, the building blocks that make up the price of diesel are so varied that it makes it difficult to predict the future pricing of this fuel source.

Unlike petrol, diesel is deregulated at the pump and wholesale level. Refiners can sell diesel to retailers and end-users at a predetermined price.

Impact on supply chain

Local – as well as global – commerce and production are just as vulnerable to energy shocks. However, the effect of increasing fuel costs on trade flows is a lot more difficult to quantify than it is at a consumer level. It is important to look beyond the activities of importing or exporting goods when considering the impact of ongoing fuel increases on trade. 

Both trade activities are eventually dependent on sizeable supply chains that begin long before the final product is available for shipping. The negative effect of high fuel costs is felt at every point along these supply chains, and it has a likelihood to amalgamate as the number of ‘links’ in the chain increases.

Saving on diesel cost

The cost of diesel has a considerable impact on operational efficiency in South Africa. If you would like to find out how you and your business can save on diesel costs, speak to an Astron Energy specialist today by clicking here.

Astron Energy prides itself on supplying quality diesel products, ensuring protection and performance that you can rely on.