Fuel crisis looming in South Africa, economist warns

Rising oil prices in South Africa and an international energy crisis are expected to put additional pressure on South African consumers in the coming months, warns Dawie Roodt, chief economist at Efficient Group.

High fuel prices in the country are one of the biggest reasons for the price hike, with the cost of gasoline effectively increasing by 85% and diesel by 69% since 2011, said Neil Roets, director. general of Debt Rescue.

In terms of rand, this means that an average 50-liter tank of gasoline costs around 916.50 rand, up from 495.95 rand a decade ago. This, while annual salary increases remain at 6.8%, he said.

“As we move into the final quarter of 2021, consumers will look to their vacations, but they will experience big price increases across the board as the price of fuel continues to climb, pushing inflation up in parallel.

“We also need to take into account the likelihood of the Treasury raising interest rates to control inflation, which will add an additional financial burden to consumers who have experienced another year of financial hardship thanks to the continued challenges brought on by Covid- 19, “Roets said.

International factors

Consumers will also face an impending energy crisis impacting the international economy. Despite the rise in the price of Brent crude, gas and coal prices are also rising, which will cause the price of electricity on the line to rise, Roodt said.

Oil has hit a seven-year high in recent sessions as the market continues to tighten amid a global energy crisis, Bloomberg reported.

“Tight supply outlook and additional demand for oil from countries in Europe and Asia seeking alternative fuels due to the global energy crisis have pushed prices higher,” said Kim Kwangrae, senior analyst commodities at Samsung Futures Inc. become a psychological burden for some investors, the analyst said.

Bloomberg reported that the world is experiencing the first major energy crisis in the clean energy transition, adding that it will not be the last.

He said that while the planet has faced volatile energy markets and supply shortages for decades, what is different now is that the richer economies are also undergoing one of the most ambitious revisions. of their electrical systems since the dawn of the electrical age – with no easy way to store energy produced from renewable sources.

“The pain in Europe is a worrying sign of the types of shocks that could hit more of the globe. Even as solar and wind power become increasingly abundant and inexpensive, many parts of the world will still depend for decades on natural gas and other fossil fuels for backup. And yet the interest of investors and companies to produce more of it is diminishing. “

That’s a good recipe for volatility, wrote Nikos Tsafos of the Center for Strategic and International Studies in a recent analysis. “You are definitely moving towards a more vulnerable system,” Tsafos said in an interview.

To be clear, the transition itself – imperative for the planet – has not caused the squeeze. But any large, complex system can become more fragile when it undergoes major changes, Bloomberg said.

All of this is happening at a time when energy use is expected to increase by 60% by 2050, according to BloombergNEF, as the world phase out fossil fuels and shift to cars, stoves and heating systems powered by gasoline. ‘electricity.

Continued economic and population growth will also lead to increased consumption. And as the world increasingly moves towards all digital, it means this heightened vulnerability comes at a time when people need reliable power more than ever.

Rising demand for electricity combined with volatile fuel prices means the world could be in dire straits for a few decades. The consequences will likely range from periods of energy-induced inflation, exacerbating income inequality, to the looming threat of power outages and loss of economic growth and production, Bloomberg said.

The planet’s energy systems are interconnected, so the crisis and its fallout are being felt around the world. The crisis has spilled over into all industries, obstructing silicon production, disrupting food supplies and scolding supply chains.

For South Africa, the rise in fuel prices comes at a time when electricity prices continue to rise sharply, with Eskom’s latest move to raise the cost of electricity for 17 municipalities. , 8%, which consumers also had to contend with.

“Internationally, energy prices are rising quite sharply right now, the price of oil is currently above $ 80, and some analysts are predicting that the price of oil will soon reach $ 100, but gas prices and coal are also exploding, electricity prices are rising. internationally, and all energy prices are increasing quite sharply.

“There are several reasons for this. One has to do with the sudden opening of the global economy after the lockdown, and another is the green economy, which favors gas over coal. This causes a disruption in supply and demand – especially from Russia – and pushes up prices accordingly, ”Roodt said.

Double hit

For consumers, increasing both fuel and energy will be a double-barreled disaster as providers of goods and services will either have to absorb the ripple effects or pass them on to consumers, Roets said. .

Food, in particular, will be hit hard as it faces rising transportation costs and the energy needed to manufacture, he said.

“After 18 months of Covid, many consumers have seen their financial situation compromised. This in a context of rising cost of living.

“As the holiday season approaches, many will have to forgo the holidays and cut back on festivities this year if they are to cope with a new year of school needs such as uniforms, books and tuition. Unfortunately, for many South Africans, it will get worse before it gets better.

Roets said consumers need to stay within their budget while accommodating increases in the cost of food, transportation, electricity and possibly interest rates.

“If they find themselves in financial difficulty and struggling to repay their creditors, it may be wise to seek advice in the form of a debt review. But for now, we are advising consumers to close the hatches and prepare for steep cost increases across the board. “

Read: The biggest destroyer of your wealth – and what it will cost you.

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