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What Determines the Fuel Price at a Petrol Station? 

March 10, 2018

What Determines the Fuel Price at a Petrol Station? 

The process of how petrol stations set their fuel prices is a question we get asked frequently. To add some perspective to this topic, we’ve outlined how South African Fuel Retailers charge the prices they do for fuel.  

The process of setting fuel prices in a nutshell 

Fuel prices are adjusted on the first Wednesday of every month and are calculated according to a formula-based pricing adjustment mechanism. This mechanism is based on the Import Parity Principle (IPP), which advocates the price an importer of a given fuel – petrol, diesel or paraffin – would expect to pay from an international market or refinery, and to transport the product to South African ports. The IPP and formula-based adjustment mechanism takes into account to key factor when composing the price of fuel: International elements known as the Basic Fuel Price (BFP), and local elements.  

International/BFP elements include, amongst others: 

  • Free-on-Board (FOB) and average freight rates – the quoted and actual costs to import the fuel product to South African boarders.  

  • Demurrage, cargo dues and costal storage – the costs incurred to use South African port facilities, which includes, offloading, storage and handling facilities.  

  • Insurance and ocean loss allowance – insuring, as well as taking into account the uninsurable losses that occur during evaporation.  

  • Stock financing costs – the costs incurred by the importer to actual hold product for a given number of days.  

Local elements include, amongst others: 

  • Levies and taxes - in South Africa the two main contributors to this element of our petrol prices are: The General Fuel levy and the Road Accident Fund (RAF) levy. Both constitute a large portion of the price end users pay for petrol and are put in place for a variety of reasons. An example would be the RAF providing relief to victims of road accidents as well as their families. Coincidently, the RAF and General Fuel levy have been increased by 52c a litre taking effect on 4 April as per the 2018 budget speech delivered by Malusi Gigaba.  

  • Wholesaler and retailer required margins - influencers that occur in the national market itself - are slightly more variable, and in South Africa are regulated by the Department of Energy (DOE). A major role-player in these local elements are levies and taxes, as well as wholesaler (marketing) and retailer required margins.  

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