Brent crude has risen above $100 a barrel this week, raising concerns that South African motorists and businesses could face further fuel price increases.  

The rise reflects restricted oil supply and heightened uncertainty caused by the ongoing conflict involving the US, Israel and Iran, as well as the closure of the Strait of Hormuz. The last time oil prices reached triple digits was in July.

According to KPMG economist Frank Blackmore, the current situation is pushing prices higher, but he notes that there are limits to how far they can rise because only a portion of global oil supply passes through the strait.  

“We saw at the onset of this war prices jumping from around $70 per barrel all the way up to $120 per barrel. That’s kind of the absolute range in which I guess prices can move. The ongoing uncertainty and the on-and-off sort of periods between negotiations and attempts to end the war have meant that oil has fluctuated around that low of about $80 a barrel and currently is continuing upwards to over that $100 a barrel level,” said Blackmore. 

Blackmore expects inflation to rise again in August and September because of recent fuel price increases.  

Meanwhile, he noted that what’s more important is the rate at which refined fuel prices have increased, which is far more than crude oil prices. 

“It’s the refined fuel prices that have gone up a lot more, around a 100% increase over time, where crude’s only gone up around 30% over the same period. So, it’s those refined products.” 

He said South Africa’s reduced refining capacity means the country must import refined fuels, leaving consumers more exposed to international price swings.  

ALSO READ: Continued global conflicts keep the pressure on fuel prices in September – Smile 90.4FM

“We used to also in South Africa have a lot more refineries, and we could have bypassed a lot of this cost pressure, which we now obviously can’t do with our limited refining capacity. We need to buy those refined fuels from overseas, and therefore we are subject to even larger, I guess, price swings because of changing fuel prices than we would have.” 

In addition, South Africa’s lack of functional rail infrastructure is adding to the pressure because goods are mostly transported by truck, increasing exposure to diesel costs. 

This comes ahead of the Reserve Bank’s September rates decision, which Blackmore suspects will be hiked. He thinks this may be because “second-round effects” are starting to take hold in the South African economy. These “second-round effects” happen when workers demand higher wages to manage the cost of living, and businesses raise their prices to do so, causing a domino effect that keeps living costs rising. 

To mitigate this and reduce core inflation, Blackmore believes rates will be increased.  

“Core inflation itself has gone up from 3% in February this year and is continually increasing to a high 4.2% in July, and that can increase further in August and September. And the bank will want to reduce that core inflation, and therefore we can expect an increase, I think, in rates at their September meeting,” said Blackmore.