Understanding the components of the wholesale diesel fuel price structure
19 Jun 2018 - by Mitchell Brooke
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.
Chart 1: Price determinants of the Basic Diesel Price
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.