The amount of money it takes to fill your car with fuel is unfortunately directly tied to the international oil price which is, once again, unfortunately very sensitive to not only international events, but investor perception as well.
The price of oil skyrocketed to record highs of over $147 per barrel in mid-2008 sending the price at pumps soaring to over R10 a litre in July 2008.
Almost immediately food prices followed the lead and jumped significantly with basic foodstuffs such as bread, milk, maize and meats becoming increasingly unaffordable for poor South Africans.
Speaking at a South African Reserve Bank Monetary Policy Committee (MPC) meeting in late June 2008, Reserve Bank Governor Tito Mboweni at the time highlighted that: "There has been no respite from the acceleration in the international oil prices which has continued to surprise on the upside.
"In recent days North Sea Brent crude oil prices reached levels of almost $140 per barrel, compared to $107 per barrel at the time of the previous MPC meeting [in April]".
The price of petrol in South Africa increased by over 30.5% in 2008 compared to the same period in 2007, while food prices also jumped significantly by over 15.9%, the governor said.
By late 2008, however, the global recession had led to a massive contraction in demand for oil in the world's most developed economies, the United States, the United Kingdom and China, in particular, and as such, the drop in oil prices was substantial.
In an attempt to stop the sliding price of oil, the Organisation of Petroleum Exporting Countries (OPEC) - which controls about 40% of the world's oil supplies - agreed to cut production by a massive 2.2 million barrels per day in mid-December 2008.
The decision to cut production was made after the price of oil dropped by over $100 per barrel since price peaked on 14 July 2008.
Professor Benjamin Smit, Director at the Bureau for Economic Research (BER) told BuaNews they forecast oil, which was rallying at $45.25 by midday on Thursday, will average about $65 for 2009.
"This may actually be a bit pessimistic but we believe oil will average $65 per barrel for this year.
"We forecast that the average price of fuel in 2008 would be R8.89 per litre. For 2009, we believe it is going to average round the R7.10 level, rising slightly to average R7.41 in 2010," said Prof Smit.
Nedbank chief economist Dennis Dykes explained to BuaNews they foresee some increases in the fuel price in 2009 as the oil price seems to have reached its floor for the moment but is will likely increase later on in the year.
"We expect the price of fuel to settle at about the R7.27/30 level by the end of this year," Dykes said.
Sanlam economist Jac Laubscher agrees that the price of oil is not likely to drop any further and that the only way left is up.
The market witnessed a sharp fall in oil prices in late 2008, Laubscher said, adding though that the current price of oil was most likely the lowest it was going to go.
"The price of fuel at the moment is probably the best we are going to have for the year, as we are going to see fuel costs rise closer to R7 in 2009," Laubscher told BuaNews.
Ongoing conflict between Israel and Palestine, while it does not physically threaten global oil supply as both do not have oil reserves, the possibility that other Middle Eastern oil giants including Iran, Iraq and Kuwait could get involved is what has got the market jumpy.
Any threat to supply and the oil price will once again shoot to levels which motorists bemoan and consumers lament.
Article published courtesy of BuaNews
