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< South Africa's GDP
Economics Main Page >

South Africa's crude oil imports inflation over time?

Category: Crude oil and inflation​​​
Date: 30 May 2019

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Ever wondered how world crude oil prices and the exchange rate impact on the price we pay for crude oil? What is the inflation rate of our crude oil imports over time like? And why do we as South Africa have to import crude? And where does our Crude oil imports come from?
Picture
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South Africa's crude oil imports

Why do South Africa need to import crude oil? Well while South Africa is a country rich in natural minerals and resources, the one thing we do not have is crude oil reserves. And most vehicles cannot function without petroleum or diesel which is manufactured from crude oil. It is therefore an essential input in the South African economy. We have no choice but to import loads of crude oil to provide enough petroleum to meet the demand of South African consumers.

While companies such as SASAL can produce fuel from gas reserves or from coal, the bulk of South Africa's fuel comes from crude oil imports which is then sent to refineries such as the ones in Durban. Fuel is then transport via pipelines to inland areas and transported via trucks to petrol filling stations. So since we do not have crude oil as a natural resource,  where does South Africa's crude oil imports come from? 

Well South Africa has a number of countries it regularly obtains crude oil from. The bulk of South Africa's crude oil comes from the following countries (ranked in order of amount and value of crude oil imports imported based on the customs data for the first quarter of 2019).
  1. Saudi Arabia
  2. Nigeria
  3. Angola
  4. Ghana

There are of course other countries South Africa buys crude from but in the main these four countries are the main suppliers of crude oil for South Africa. So two factors affects the price of crude oil that South Africa refineries and firms pay to get crude oil into South Africa. And they are the exchange rate and the international crude oil price. While they affect the price substantially there is very little that can be done in order to avoid this, unless firms take out hedging positions to try and protect purchase prices from volatility in crude oil prices and/or the exchange rate. 

So lets take a look at the rate of inflation of South Africa's crude oil imports over time. How much more or less are we paying for crude oil now compared to 12 months ago. The graphic below shows the year on year inflation rate of South Africa's crude oil imports over time, as measured by South Africa's Unit Value Indices (UVI).UVI's is a measure of import and export prices. The graphic below shows the year on year growth rate of South Africa's crude oil imports UVI.
chart created with amCharts | amCharts
The line chart above shows just how wild and erratic the year on year inflation rate of South Africa's crude oil imports is. Its not real surprise then that the petrol price announced on a monthly basis by the Department of Energy tends to vary wildly from month to month. Some months sees significant cuts in the fuel price in South Africa and others sees sharp fuel price increases. The latest fuel price announcement is expected to see the fuel price increase slightly, by an estimated 8c to 10c a litre. See the last fuel price announcement and price here.

A worry for monetary policy officials who keep an eye on inflation is the erratic crude oil price which in turn affects the fuel price, as its hard to predict the this it is hard to estimate the overall longer term trends in inflation, which could lead to the monetary policy committee of the South African Reserve Bank (SARB), making policy decisions based on dodgy prediction models of crude, fuel and in the end inflation. They should therefore be careful to place to much emphasis on prediction models and continue to look at actual rates of inflation measured and focus on core inflation (which excludes volatile items such as crude oil and electricity and other erratic prices).

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