With the price of fuel rising by 25% for petrol and 50% for diesel from the 1st April tomorrow is going to be mayhem at the petrol stations. The chances are most will be dry by tonight or by mid morning and today noticed out of stock signs on a few of the pumps at the local petrol stations.
The biggest problem is are they really out of stock or have they just turned the pumps off to that particular storage tank. Petrol stations have multiple storage tanks beneath the forecourt and it would be fairly easy to do.
When you consider most forecourts earn between 1.5 and 2% on their fuel sales so a petrol station selling 500 000 liters monthly equates to 10 000 liters profit whatever that price might be. In South Africa that would equate to around R200K which is actually not that much and why you get screwed over buying anything from their convenience store. The 7 to 10% profit margins have so many added costs attributed to the fuel sales the net is diluted and why it is anywhere between 1.5 and 2% only.
How tempting would holding back 100 000 liters be knowing you could now make 27% or R675K and nearly 3.4 x more than your average monthly profit. This is going to be highly tempting and at the same time hard to prove because one could just say the pump is faulty and needs to be repaired or replaced. They just give the repairman a bribe and they then have proof of their fault and are not doing anything illegal.
Regulated garages directly owned by fuel suppliers will earn more next month as it is a percentage on the fuel price so on the 25% increase would expect a serious bump in revenue.
The problem with South Africa is the fuel reserves are not huge and instead of the 90 days they once had they only have between 12 and 17 days. The reserves under Zuma's Presidency totaled a reported 10 million barrels were sold at around $23 per barrel which at the time was $6 below the $29 per barrel price. The reserve stock pile has never been fully replenished with reports suggesting the reserve should be around 40 million barrels for the 90 day requirements.
It is most likely SA will run out of fuel with vehicles who normally run on a quarter tank now topped up to full. I am hoping we do not have a fuel crisis because that would be another hit to the economy that it could not take right now.
When I was working in the UK for a tobacco company many years ago we had to deal with the Chancellors budget. This is when the new revenue duties (taxes) are announced and are then added on to the price of cigarettes. Like the fuel retailers the margins are tight and why being able to earn a higher percentage is so tempting and appealing.
Every year months in advance I would be working on my forecasting for the wholesalers in London making sure they were not over purchasing and stock piling. These wholesalers would be under pressure from the retailers they supplied so would place limitations in what could be purchased. The smart ones who had the spare cash bought the popular brands in bulk a few months in advance. Wholesalers were more often than not carrying loads of stock due to slowing down on supply the week of the budget speech.
The tobacco companies also benefitted from this period as they would bring stock across the invisible line in the factories which triggered the immediate duty payment. Whatever stock was on the duty paid side would be worth more once the new budget excise duty was announced. There are restrictions in place to prevent profiteering, but there will always be an upside.
