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Fuel prices could drop up to R2.13c per liter, bringing them down to less than 15 rand a liter for the first time in May and the lowest gas prices since the increase of the fuel tax in April.
The reason is that the average recovery rate of gasoline for the month of January is mainly due to the fall in the price of oil. The strong rand added about 17 cents to the average of the recovery. The average overrun should be about 191 cents for gasoline and 160 cents for diesel.
Many experts have predicted heavy falls, but the under-recovery hides that the slate tax would no longer be needed, as the AS consumes nearly 2 billion liters of fuel per month. According to the DoE, slate tax finances the accumulated under-recovery of the industry and only applies when the cumulative slate balance exceeds 250 million rand (under-recovery).
Motorists and truckers owed 2.2 billion to the slate, but the price of gasoline dropped so much that the average amount of recovery and tax on slate would average higher at R2 the liter of gasoline and about 1.65 rupees. for diesel, means that the slate tax deficit has been eliminated.
A simple calculation in the opposite direction shows that 2 billion liters multiplied by 1.9c (recovery value of gasoline and diesel on average and levies on the slate) mean that the shortfall of R2 , 2 billion had a balance of 3.8 billion Rupees. should have a surplus of 1.6 billion rand today. (That is, the oil companies would owe the consumer a restitution that they would not have to pay according to the rules, this one being kept in the slate when the prices go back again)
Clearly, a positive slate balance means that it would not be necessary to continue collecting the levy of 21.92 cents slate per liter at the present time. Removing slate tax means that a larger than average decline in recoveries would be warranted so far.
The slate mechanism method, however, comes back two months behind the slate tax balance, as was the case in October for fuel prices in December. But the logic says that the huge increase in recovery has had the effect of erasing all the sums due.
Therefore, the Ministry of Energy can afford to remove the tax on the slate for December.
This would result in the sharpest decline in the history of the price of R2,13 petrol. This would represent a drop of about 13% in gasoline. This would save R275 motorist's average income for the month of December (remember that after taxes and other commitments it should allow a change in spending of about 8%.) Sales Retail could increase by more than R2 billion dollars for example if the extra disposable income is spent there.
This would certainly help to boost consumer and business confidence. The current drop would boost retail sales in the most important part of the year for retailers and with Christmas, a time of confidence also, we can ask taxis and others to lower prices for people going on vacation .
Overall, if the price of oil is around 60 dollars a year instead of 80 dollars a few months ago, the current account deficit would fall by almost 40 billion rand! This could add 1% to GDP next year, all other prices remaining the same.
A barrel of oil at $ 60 a barrel for a year or more is a possibility, as oil production in the United States has risen by 3 million barrels this year alone, a fact that I almost missed in the constraints of artificial supply of OPEC. The United States should, by 2020, become an oil exporter for the first time since 1949! Yes, the biggest importer and user of crude oil in the world will probably export in a little over a year from now, even if its price falls below the $ 45 mark for Brent.
If the price of gasoline remains below R15 per liter for a few months, the inflation rate should fall directly from 0.6% to 0.8% and indirectly from 0.1% to 0.2%, so that inflation would fall below the mid-point of the target of 4.5%. (Eskom's price hikes could erase that, but nonetheless, by March 2019, this probability is very strong.)
The fall in the inflation rate below the target of 4.5% also points to a drop in interest rates which could also stimulate the economy further.
The energy department should give AS the lowest possible price reduction, which would help the country to add value to the economy so that the recovery is effective as soon as possible. Next year.
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