Understanding the components of the wholesale diesel fuel price structure


On 6th June the diesel fuel price increase of 85cpl was the largest single increase in South African history. The reefer wholesale diesel fuel price (0.05%) in June was also the highest in history at R14.19 per litre. On this basis we will unpack the components of the diesel fuel price to understand what is behind the cost.

There are two main cost components of the fuel price structure.

  1. In bond landed cost or basic diesel price of fuel: this component of the cost structure takes into account the purchase price of crude oil delivered by tanker to refinery storage facilities. The cost structure considers the monthly average crude oil price, the average exchange rate (ZAR/USD) and the shipping and pipeline cost to receive the oil in the refineries’ storage tanks. Below is a chart that highlights the average oil price, average ZAR/USD exchange rate and the basic diesel price. It is visible that the rand purchase price of oil is very much related to the basic diesel price. It is important to note that the average oil price in June was US$77 per barrel which was the same level as it was in April 2010. The fact that the average exchange rate for the month of May 2018 was R12.51/US$ against R7.50/US$ in March 2010, meant that the average rand price of oil was R961 per barrel in June 2018 whilst the average rand price of oil was R592 in April 2010. The basic diesel price was R7.46 per litre in June 2018 compared to R4.45 in April 2010 – a difference of R3.01 per litre. 

Chart 1: Price determinants of the Basic Diesel Price  

  1. Wholesale composition cost: this component considers the cost of manufacturing and delivery costs to retailers and suppliers of fuel. In this case we consider the cost of fuel delivered to reef areas which includes the cost of transportation. There are seven main cost elements comprising the composition cost of which the main two components are –  
    1. Road accident fund levy (RAF): in April 2008 the RAF levy was 47c per litre which has escalated to 193c per litre in April 2018, an increase of 146c per litre.
    2. General fuel tax (GFT): in April 2008 the GFT levy was 111c per litre and has increased to 332c per litre in April 2018, an increase of 211c per litre.

Both the above cost elements have increased by 357c per litre combined over this period.

Chart 2: Wholesale composition cost of Diesel fuel

In summary, the current high price of diesel fuel as compared to 10 years ago is largely driven by the weakening of the rand value against the US dollar and government taxes and levies. Consider the following three scenarios – 

Scenario 1: if the RAF levy and GFT levy were left at the 2008 level, the current wholesale price of diesel fuel would be R10.33 per litre - a difference of R3.86 per litre against the current price.

Scenario 2: if the RAF levy and GFT levy were left at the 2008 level and the rand/US$ exchange rate was at a level of say R10.00/US$, the wholesale price of diesel fuel would be R8.87 per litre - a difference of R5.32 per litre against the current price. 

Scenario 3: if the oil price escalates to US$100 per barrel by April 2019 (using R12.50/US$) and including the possibility of further increases in fuel taxes and levies, the wholesale price of diesel could escalate to as much as R16.90 per litre – a potential increase of R2.71 per litre against the current price. 

The components of the wholesale price of diesel fuel is shown in the chart below.

Chart 3: Component cost of the price of Diesel fuel

Mitchell Brooke has worked in citrus since 1997, including various management positions at the port of Durban. In April 2008 he joined the Citrus Growers Association of Southern Africa with the purpose of streamlining some of the logistics constraints that had developed in the industry as an upshot of deregulation and is currently the Logistics Development Manager at the CGA.


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