Petrol price set for huge cut?

While the drop will bring relief to motorists, it will come at a price for petrol station owners.

T-Sec economist Mike Schüssler estimates that the decrease could be approximately R1 for petrol and R1.60 for diesel if the oil price remains low and the rand remains strong.

Changes in fuel prices come in to effect on the first Wednesday of a new month. If the price dips sharply, petrol station owners who bought fuel at the more expensive price will sell it at a loss as of the day of the change. On top of this, motorists will wait for the lower price before they fill up their vehicles.

This could result in petrol stations keeping their supply low until the Tuesday, or they might even allow supply to run out. Oil companies will then struggle on the Wednesday to meet the demand. They could also lose large sums of money on their bulk buyers if petrol stations place their orders for delivery after the price decrease.

Peter Noke, national director of the South African Petrol Retailers' Association (Sapra), says the organisation has asked oil companies to supply fuel to petrol stations at already slightly cheaper prices, even before the price decrease. This will help spread out the losses.

"One wants the price to come down, but at about 30c per month," says Peter Morgan, head of the Fuel Retailers Association, which represents approximately 1 300 petrol station owners. After a difficult 12 months in the industry, a big drop of R1 on the fuel that is already in the tanks could be a tough blow for petrol station owners.

"People won't survive it," says Morgan.

Good idea

Sapra and the Fuel Retailers Association have already encouraged their members to place their orders with caution.

"I have to warn you against the use of this early information when you make purchasing decisions, but I also think it is important information to share with you," Morgan says in a letter that was sent out on August 8.

Schüssler says it could be a good idea to implement an early price decrease next month, in stead of one big decrease on September 3.

"Consumers are screaming for it and petrol stations need it," he says.

A drop in price could bring greater sales volumes, and could increase the profit percentage.

The volume of fuel that was sold in the second term this year is 6% lower than those of the first term, according to the South African Petroleum Industry Association (Sapia). This is mainly due to price increases.

- Sake