Fuel for thought

If you’re at all like me (and yes, in this instance you are), you’ll moan about the fact that the petrol price keeps rising. Either the price of Brent crude’s increasing, or the Dollar’s gaining on the Rand, they always tell you. But even when the Dollar weakens against the Rand the price still rises.

Now, for an un-economist like me, this confusion is downright frustrating and smacks of excuses and refineries lining their oily pockets with even more absurd profits. So, I’ve done a little check on historical prices (using data from here and here) to see whether there’s been one mother of all consumer rights cock-ups, and, the answer is that I’m undecided. (The real truth is that I had to manually redraw the graphs below, so didn’t have the actual figures to convert the y-axes to equivalent scales, where a fair comparison could be made, so all my conclusions are based on visual estimation of the figures rather than on the actual figures themselves).

Warning: I really must warn you that I have as much Economics training as a pistachio, so feel free to ignore/correct me, peeps.

First, I present for your attention Graph A: the Dollar/Rand exchange rate plotted against Brent crude price per barrel. Because I don’t have data going further back, I can’t tell you whether there is any reasonable correlation between the two statistics – 9/11 was an anomaly which will have caused substantial disruptions to either or both figures (for example, demand for fuel fell as people lost their appetite for travel by aeroplane). At face value though, one might assume that there was no significant relationship between the two.




Next, I present Graph B: Brent crude price per barrel versus petrol price. Now this graph is more the stuff of statisticians’ wet dreams, because one can draw some conclusions off this: our petrol price is quite strongly correlated with the cost of Brent crude, which while being marginally inconvenient given the uncomfortable inching up of the barrel price on a daily basis, is also reassuring in that it sort of says that the stuff we fill our gorgeous Mini Coopers with is actually mostly fuel (without too many diluting cheaper substitutes like refinery fat-cat urine). I’ve even added pretty green circles to highlight the lag in changes in Brent crude price affecting the local petrol price.



But wait, there’s more… I’ll omit the third permutation of the above data (local petrol price vs Rand/Dollar exchange rate) because it’s much like the first graph (what with the close pattern between local petrol price and Brent crude price), and skip straight to the combined graph, where all three variables are plotted on one graph:




Now again, I warn you that the scales used on the y-axes are not comparable, so visual comparison is actually not going to be that accurate, but I’ve tried to estimate the actual values for more accurate comparison than just looking at the differences from the pictures. The first pretty green circle shows an increase in the Dollar’s value against the Rand of around 70%, with the arrow indicating a corresponding 40ish% decrease in the Brent crude price over the same time period. What happens to the petrol price over this time? It remains constant on average. i.e. the smaller change in the Brent crude price appears to buffer the larger change in the exchange rate. Now look at the second green circle: this depicts a 35% drop in the Dollar: Rand value over the period, while the arrow depicts the 150% increase in Brent crude price, and the corresponding 80% increase in the local petrol price.

If the impact of the percentage changes were like for like, then the first green circle scenario should result in a (70%-40%) = 30% increase in the petrol price (as opposed to it remaining roughly constant), while the second should result in a (150%-35%) = 115% increase in petrol price rather than the actual 80% experienced.

So what does this all mean? I can think of only four options:

1) Government is lying, they’re using the exchange rate as an excuse to hike up petrol prices to fund their (social) parties (I’m thinking Zoolander parties where they spray each other with “expensive” petrol for shits, giggles and cheap thrills)

2) The lag in the exchange rate’s effect on the petrol price is out of sync with the lag of Brent crude’s effect (i.e. the major impact on the petrol price is not seen until later than Brent’s price’s impact, so we’re comparing the wrong time periods for each graph against each other)

3) Government chooses to subsidise partly the effect of the exchange rate on the petrol price, but doesn’t feel the need to do so for the effect of Brent crude’s change in price

4) I’ve got something grossly incorrect here and am now spreading a groundless conspiracy theory, in which case I humbly apologise, Big Brothe…