Volatility in the Middle East, a key region for global oil production, has contributed to turmoil in international fuel markets, with South African motorists facing the prospect of higher fuel prices.

Southlands Sun reports that while petrol and diesel prieces are set to increase, the price consumers pay at the pump is determined by a far more complex set of factors than crude oil movements alone, which are often the focus of news coverage.

What is the Basic Fuel Price?

The Department of Mineral and Petroleum Resources explains that South Africa’s local fuel price is determined by an import parity model called the Basic Fuel Price (BFP).

“The underlying principles for the basis of determination of the BFP are to represent the realistic, market-related costs of importing a substantial portion of South Africa’s liquid fuels requirements, and it is therefore deemed that such supplies are sourced from overseas refining centres capable of meeting South Africa’s requirements in terms of both product quality and sustained supply considerations. The petrol price in South Africa is therefore directly linked to the price of petrol quoted in US dollars at refined petroleum export orientated refining centres in the Mediterranean area, the Arab Gulf and Singapore,” the department said in a statement.

Consequently, three primary global factors immediately impact local pricing: The international price of crude oil, worldwide supply and demand for petroleum products, and the exchange rate between the South African rand and the US dollar. When tensions flare in oil-producing regions such as the Middle East, concerns about supply disruptions typically push global oil prices upward. At the same time, if the rand weakens against the dollar, the cost of importing fuel increases further, intensifying pressure on consumer prices.

International influences

Several international factors also influence the price:

• Free-on-board (FOB) values: Petroleum product prices quoted daily by export-orientated refining centres situated in the Mediterranean area, the Arab Gulf and Singapore.
• Freight: The cost of transporting refined petroleum products from these centres to South African ports.
• Demurrage: Charges related to loading and offloading petroleum products at ports in the Mediterranean area, Arab Gulf and Singapore and South African ports.
• Insurance: An element of 0.15% of the FOB value and freight to cover insurance and related costs such as letters of credit, surveyors’ and agents’ fees, and laboratory costs.
• Ocean loss: A loss allowance of 0.3% calculated on the sum of FOB, freight and insurance values to account for typical uninsurable losses during transport.
• Cargo dues (wharfage): Costs for using South African port facilities to offload petroleum products into onshore storage.
• Coastal storage: Costs to provide storage and handling facilities at coastal terminals.
• Stock financing: Based on landed cost values, 25 days of stockholding, and the ruling prime interest rate less 2%.

Domestic influences

Once fuel arrives in South Africa, an additional layer of domestic costs is added to the final retail price.

• Inland transport costs: Refined petroleum products are transported by road, rail, pipeline, or a combination of these from coastal refineries to inland depots.
• Wholesale margin: A fixed maximum monetary margin determined using guidelines from the Marketing of Petroleum Activities Return.
• Retail profit margin: Fixed by the Department of Mineral Resources and Energy based on the actual costs incurred by service station operators in selling petrol.
• General fuel levy: A tax collected on every litre of fuel, aimed at funding general government expenditure.
• Road Accident Fund levy: Adjusted annually and used to compensate victims of road accidents.
• Carbon fuel levy: Intended to reduce emissions.
• Customs and excise levy: A tax imposed by SARS.