Oil rigs

15 Jun 2022

Double, double oil and trouble

Focus team

Focus

Digital content team

Delving into South Africa’s oil-price crisis

Listen to the podcast

Ep26: Fuel price: how high can it go?

In this episode, host Jeremy Maggs and guests, Investec Equity Analyst Herbert Kharivhe and Wandile Sihlobo, Chief Economist of the Agricultural Business Chamber of South Africa, discuss the impact of the oil price on fuel, electricity and food.

You can also sign up to the Investec Focus newsletter for our latest insights

Sending...

Please complete all required fields before sending.

Thank you

We look forward to sharing out of the ordinary insights with you

Sorry there seems to be a technical issue

There’s now a very serious downside to filling up your tank, with the oil price a staggering 40% more expensive than it was 12 months ago. But there’s more to this worrisome trajectory than your frantic fuel gauge: the question of how a rising oil price will impact on the cost of electricity and food in South Africa. 

How we got here

The rising fuel price comes down to three factors. The one we’re all discussing is Russia’s invasion of Ukraine. As Russia is one of the top three global oil producers, the war and subsequent Western sanctions have had a massive impact on oil prices the world over. We also need to factor in policy reform – governments are falling out of love with fossil fuels and decommissioning refineries, resulting in a loss of investment in the sector. Finally, we must consider that age-old tension: supply simply not keeping up with demand.

As the oil-price crisis unfolds and our wallets fold, our expert isn’t optimistic. “I think it’s safe to say that, in the short term, there is still more pain to come,” says Herbert Kharivhe, Equity Research Analyst at Investec. “Given all the dynamics at play, I think it's too soon to call when we may begin to see some relief.” He was speaking on Investec’s fortnightly podcast, No Ordinary Wednesday.

Petrol to pantry

With the large majority of our food is transported by road, exactly how are these next-level oil prices impacting on our pantries?

“The first thing that many people have been asking me is whether South Africa has sufficient food supplies,” says Wandile Sihlobo, Chief Economist of the Agricultural Business Chamber of South Africa. “I would say the answer to that is yes.” He was also a guest on the podcast.

While food-price inflation is moving at much the same pace as last year, those lower on the income scale are still set to feel the pinch.

Says Sihlobo: “This is where it's relevant to look at the [shopping] basket of the people in the lower LSM (living standard measure). You find that they buy a lot of oils, maize meal, bread and samp – and those are also the products that are rising at a faster pace.”

“You will see food price inflation averaging somewhere between 6% and 6.2% this year. Yes, that will be intense, but it will be intense just for those few months. What will assist a lot is the deceleration that we are expecting in fruits and vegetables, but also meat prices that are moving sideways.”

“The next two months are critical,” emphasises Sihlobo. “I think that's when the increases that the food companies are making will pretty much show up in the retail prices of a range of products. So, looking at where the households will be at that time would be an important thing to monitor.”

Flipping that switch

When it comes to keeping the lights on and bemoaning South Africa’s heavy reliance on expensive diesel, our expert says we’ll simply have to make do. “Eskom does have a big brother called government underwritten by the taxpayer – you and me. So, the country will have to make a plan and come up with a way to fund the diesel costs.”

“This is money we could have spent on education, health care, debt reduction… But now we are going to pretty much use it elsewhere, just to keep the limited supply of electricity going.”

There’s no denying the perpetual angst caused by Eskom’s failures and loadshedding. “Added pressure is coming because your savvy customer, the one that's able to pay, is adopting renewables and slowly moving away from the grid. So, the outlook [for Eskom] is not good,” says Kharivhe.

With another hike looming in the not-so-distant future, anxiety is running high. "We have made some positive strides but there is more that can be done," Kharivhe explains. "In the immediate short term, I'm afraid we are going to have to take some pain."

  • Disclaimer

    Focus and its related content is for informational purposes only. The opinions featured on the site are not to be considered as the opinions of Investec and do not constitute financial or other advice. The information presented is subject to completion, revision, verification and amendment.

  • Disclaimer

    The information furnished in this report, brochure, document, material, or communication (“the Communication”), has been prepared by Investec Bank Limited. This Communication does not constitute: a research recommendation, investment, legal, tax or other advice; and is not to be relied upon in making an investment or other decision. The intended recipients should consider the information contained herein to be objective and independent of the interests of the trading and sales desk concerned. Opinions and any other content including data and market commentary in this Communication are provided for information purposes only. The information contained herein has been obtained, where required, from various sources believed to be reliable and may include facts relating to current events or prevailing market conditions as at the date of this Communication, which conditions may change without notification to Investec and/or the recipient.  This is a summary of relevant information and should not be considered as complete. 

    This Communication may not be considered as “advice” as contemplated in the Financial Market Act, 19 of 2012 and/or the Financial Advisory and Intermediary Services Act, 37 of 2002 as it does not take into account your financial position or needs. This Communication may also not be seen as an offer to enter into or conclude any transactions.  In relation to the information, Investec does not guarantee the accuracy and/or completeness thereof and accepts no liability in relation thereto. You should make your own independent evaluation of the relevance and adequacy of the information contained herein and make such other investigations as you deem necessary, including, where relevant, obtaining independent financial advice, before participating in any transaction in respect of the securities referred to in this document.

    Any opinions, forecasts or estimates herein constitute the personal judgment of the party who compiled this Communication as at the date of this document. Thus, this Communication reflects the different assumptions, views, and analytical methods of the specific individual/party who prepared this Communication. As such, there can be no guarantee that future results or events will be consistent with any such opinions, forecasts or estimates. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied is made regarding future performance. There may be risks associated with the information, products, or securities, including the risk of loss of any capital amounts invested or traded due to market fluctuations. There is no obligation of any kind on Investec or any of its Affiliates to update this Communication or any of the information, opinions, forecasts or estimates contained herein. 

    This Communication is confidential for the information of the addressee only and may not be reproduced in whole or in part, nor shall it be copied, redistributed or circulated, or disclosed to another unintended party, without the prior written consent of the relevant entity within Investec. In the event that you contact any representative of Investec or any party in connection with the receipt of this Communication, you should be advised that this disclaimer applies to any subsequent oral conversation or correspondence that occurs as a result of this Communication. 

    Any subsequent business you choose to transact shall be subject to the relevant terms and conditions thereof. 

    Neither Investec nor any officer or employee thereof accepts any liability whatsoever for any direct or consequential loss arising from any use of this Communication or its contents. 

    Investec Bank Limited registration number 1969/004763/06, an Authorised Financial Services Provider (11750), a Registered Credit Provider (NCRCP 9), an authorised Over the Counter Derivatives Provider, and a member of the JSE. Investec is committed to the Code of Banking Practice as regulated by the Ombudsman for Banking Services. Copies of the Code and the Ombudsman's details are available on request or visit Investec COBP.

    Investec Private Banking, a division of Investec Bank Limited registration number 1969/004763/06. Investec Private Banking is committed to the Code of Banking Practice as regulated by the Ombudsman for Banking Services. Copies of the Code and the Ombudsman's details are available on request or visit www.investec.com. A registered credit provider registration number NCRCP9.

    Investec Wealth & Investment, a division of Investec Wealth & Investment International Proprietary Limited, registration number 1972/008905/07. A member of the JSE Equity, Equity Derivatives, Currency Derivatives, Bond Derivatives and Interest Rate Derivatives Markets. An authorised financial services provider No.15886. A registered credit provider registration number NCRCP262. The disclaimer is deemed to form part of this message in terms of Section 11 of the Electronic Communications and Transactions Act 25 of 2002. 

    Investec Life Limited, a member of the Investec Group is a registered Long-term Insurance Company (Reg.No. 1944/017130/06) and an authorised Financial Services Provider (FSP number 47702).
    Terms and conditions apply.