Why does the petrol price rise and fall?

South Africans will feel the pinch even further today at petrol pumps around the country. Kicking in at midnight last night, we will now have to fork out an additional 81 cents for petrol, while Diesel is up by 58 cents a litre and paraffin by 59 cents.

But what causes the price of fuel to increase or decrease? And is this something we need to factor into our budgeting?

In South Africa, the price of fuel is set monthly by the Central Energy Fund, a state-owned entity, and is based on a number of factors. These factors include international petroleum prices, which are linked to the supply and demand of crude oil, the rand/US dollar exchange rate, and the cost of distributing petrol in South Africa, which includes the cost of getting the fuel from the oil tankers to your motor vehicle. Economists attribute the most recent petrol price drop to the strengthening of the rand and lower oil prices.

“Despite the fact that work-from-home as decreased the daily commute for many of us, South Africans are still among the highest petrol guzzlers around the world. According to Bloomberg, we “face a lot of pain at the pump”, which is aggravated by how little income we earn on average. We spend over 3% of our paychecks fueling up, the third-highest amount of all countries,” Ernest Zamisa, Financial Planner at Momentum Financial Planning.

How does this impact our pockets?

According to Zamisa, variable – or changing - expenses, like the price of petrol, can make budgeting a real challenge. “Also, petrol price fluctuations not only affect the cost of transport, they also have a knock-on effect on the cost of food and other products, and may lead to an overall rise in the cost of living when there are increases. To soften the financial impact and ensure you remain on your journey to success, you need to factor this into your financial planning and budgeting,” says Zamisa.

Some top tips to stay on track financially despite the fuel increase:

• Professional financial advice enables success – chat to your financial adviser to ensure your plan can handle changing expenses;

• Prepare for potential fuel fluctuations by working out how much money you currently spend on petrol. Then set aside between 5 to 10 percent of this value each month as an emergency fund to help buffer against future increases.

• By having a budget in place and staying close to your financial adviser, you can plan for potential petrol price fluctuations and how these will affect the cost of other monthly expenses, to better withstand the impact of fuel increases.

ENDS