Understanding why petrol prices do not always follow oil prices

For consumers trying to understand where petrol prices are heading, it is useful to look beyond the oil price alone.

When global oil prices fall, many South Africans expect petrol to become cheaper almost immediately. While a lower oil price can improve the outlook, it is only one part of South Africa's regulated fuel pricing formula.

South Africa's regulated petrol price begins with the Basic Fuel Price (BFP), which reflects the cost of importing finished petroleum products into the country. Although Brent crude is an important international benchmark, motorists ultimately pay for finished petroleum products rather than crude oil itself.

The rand-dollar exchange rate is another key factor. International prices for finished petroleum products are quoted in US dollars, so a weaker rand can reduce or even offset the benefit of a lower oil price. As a result, a decline in Brent crude does not necessarily translate into an immediate reduction at the pump.

South Africa's regulated fuel prices are adjusted once a month, with changes taking effect on the first Wednesday of each month. A brief decline in oil prices may have little impact if the oil price or the exchange rate recovers before the monthly review period ends.

The final pump price includes more than the BFP. Government levies, storage, distribution, wholesale and retail margins, and other regulated charges are added before motorists pay at the pump. When applicable, the slate levy, which is used to recover previous under-recoveries in the regulated pricing system, may also influence the final price.

For consumers trying to understand where petrol prices are heading, it is useful to look beyond the oil price alone. Brent crude, the rand-dollar exchange rate, international prices for finished petroleum products and South Africa's monthly fuel price adjustment all play a role in determining the final price.

A lower oil price is generally good news for motorists, but it does not guarantee immediate relief at the pump. South Africa's regulated fuel pricing formula considers several factors, which is why petrol prices do not always rise or fall in line with global oil markets.