While crude oil prices saw a 15% decrease on Wednesday, following news of ceasefire negotiations between the US and Iran, it is unlikely that South African travellers will see lower airfares and petrol prices any time soon, say experts.
In the early hours of Wednesday morning (April 8), US President Donald Trump announced that negotiations with Iran were under way, contingent on the opening of the Strait of Hormuz. This saw Brent crude oil prices drop by about 15% to an average US$94 (R1 530) per barrel by mid-morning.
However, South African jet fuel and petrol prices will not see immediate relief due to a domestic fuel inventory lag and high refining costs.
Delayed effect
Due to inventory lags, the benefit of lower global oil prices will only reach South Africa once the current high-cost fuel shipments have cleared the pipeline.
“Fuel suppliers purchased the fuel that is currently being exported to and arriving at South African ports, at the price determined prior to this recent drop in the brent crude oil price,” explained Linden Birns, MD of Plane Talking. “So, assuming this price drop is sustained, there will be a natural lag before these lower costs reach the South African market.”
He explained that the price of jet fuel was also exacerbated by domestic logistics and transportation costs to move fuel from harbours to refineries and airports, as the petrol and diesel powering these supply chains was still priced at the previous, higher rates.
Refining capacity to hike prices
During an IATA World Data Symposium in Singapore, IATA CEO Willie Walsh, warned that even if the Strait of Hormuz were to reopen, it would still take months for global jet fuel supply to recover due to disruptions to the Middle East’s refining capacity.
Birns explained that in South Africa, the loss of local refining capacity since 2021 had resulted in the rise of jet fuel prices because most fuel was imported and the limited amount produced by Sasol was dependent on imported crude oil. This has contributed to rising refining margins – known in the fuel industry as crack spread.
“The crack spread represents the margin that refineries apply to cover their production costs and profits. Airlines’ fuel suppliers then apply their own margins on top of the refinery price to cover the logistics costs for transporting and storing the fuel to and at the airports,” said Birns.
According to IATA’s Jet Fuel Price Monitor, international average crack spread has increased by almost 10% since the beginning of March.
Jet fuel surcharges remain
As of April 1, jet fuel at inland airports increased by 115% month-on-month, while jet fuel at coastal airports increased by 145%.
As a result, airlines are maintaining their fuel surcharges, including Airlink and FlySafair.
“Airlink is continually assessing developments. As things currently stand, we see no need to cancel any flights, however we will adjust our fuel surcharges,” said de Villiers Engelbrecht, CEO of Airlink.
FlySafair’s fuel surcharges had increased by almost 400% between March 11 – when it was first introduced – and March 30, in response to rising fuel prices.
