The ins and outs of fuel price dynamics
The Central Energy Fund (CEF) typically announces final fuel price changes the Monday before the price change, leaving little time to respond efficiently. To counter this, some early research during the preceding month will give a good indication of what to expect.
Although the diesel price is deregulated at the pump and wholesale level, price shifts still take effect when the fuel price changes on the first Wednesday each month. These shifts are due to changes in the Basic Fuel Price (BFP) monthly calculation – an exercise done by the CEF on behalf of the Department of Energy (DoE). These updated fuel prices are published as monthly press releases on the CEF’s website.
Additional information related to the fuel price calculations is also available on the websites of the South African Petroleum Industry Association (SAPIA) and the DoE.
Fuel prices explained
The composition of the fuel price comprises several domestic and international elements. The latter represents the BFP, which is based on how much a South African importer would pay for fuel supplied by an international refinery and transportation to local shores.
Local costs, taxes, duties, levies, and margins represent the domestic elements. They are added to the BFP to get to the final selling price within the country’s different transport zones or magisterial districts. The wholesale list price is often referred to as the “grid price” in these zones.
Fuel prices in coastal zones are usually lower than inland zones since they are closer to ports and refineries and have not incurred the cents per litre costs of transporting them to inland distribution centres. Such transportation takes place via a pipeline, rail, or road transport. SAPIA calculates these costs on behalf of the oil industry, subject to ministerial approval before being included in the oil company wholesale pricing structures.
Recoveries and the slate account
Whereas international markets dictate the BFP, the basic price constitutes the fixed cost charged to consumers for a month. Since the monthly averages on which the BFP is based fluctuate, slight imbalances can build up. Therefore, if the BFP is higher than the basic price on any given day, an under-recovery occurs, which means end customers pay too little for the product. Conversely, over-recovery results when consumers pay slightly more than the BFP.
These figures are then multiplied by the volumes sold locally during that month, after which the aggregated figure is recorded on a slate account. This dynamic may result in a negative balance in certain months, during which the CEF implements a slate levy to restore the balance.
Businesses keen to track the under- and over-recoveries at any point in the month, or wish to know what the predicted price change will be on the first Wednesday of the month, can visit the CEF’s daily basic fuel price. Open the PDF document, and on the page, there will be a line entitled, “Average unit over/(under) recovery".
The closer to the first Wednesday of the new month a business accesses the webpage, the more accurate the price change. It is important to note that the slate change indicators and not the published fuel price change are issued on the Monday before the price change.
Fuel prices typically change in December and April when updates are made to retailer margins and the fuel tax.