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Why the rising petrol price is here to stay

by , 03 December 2021
Why the rising petrol price is here to stay
The petrol price in South Africa is breaking the R20 a litre level.
December 2020 it sold for R14.26 a litre. That's an increase of 41.6%
Sure - the 2020 level for petrol prices was a low base. Covid reduced demand and the oil price was really low.
But the huge increases we're seeing now are hurting - and they'll definitely affect business as well.
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2021 has been a stellar year for the Red Hot Penny Shares portfolio
 
In fact, it’s been one of the best we’ve ever had.
 
In January we closed out Jubilee Platinum at a whopping 342.86% gain.
 
I’d tipped the platinum and chrome play whilst no one knew about the company – and slowly things changed… Until the share price went stratospheric.
 
We had a number of other big winners as well…
 
Pan African Resources banked us a 144.56% gain, MPact banked a massive 179.78%
gain in only 11 months.
 
And perhaps one of my favourites was Adapt IT, I tipped the company in November 2020 at a mere 264c. By May 2021 there were two suitors bidding for the company’s shares, looking to delist it… We sold at 640c, and made 142% gains in a mere 7 months.
 
We closed out 20 stocks for the year – with only 4 losers. Our only significant loss was on CSG Holdings – we lost 63% when we closed the stock in January this year. I am however happy with the sale.
 
 
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So what’s behind the big rise in fuel prices?
 
In October 2021 the oil price shot up past $83 – from $56 in August.
 
At the same time – in September we paid R14.20 to a dollar – and hit the R16.28 to a dollar level in November 2021.
 
So not only did the price of oil soar – but the rand lost a lot of ground to the dollar.

And that provided the backdrop for the huge fuel price increases we’ve just seen…
 
Even a respite in oil prices won’t save us now.
 
If the oil price drops from here (it already dropped from $83 to $67), and the rand strengthens again we likely won’t see a big improvement in the fuel price…
 
You see, in South Africa roughly half of the current fuel price is government levies and taxes.
 
And by end February 2022 the government will increase these again – as they always do.
 
Typically by more than inflation…
 
So what’ll happen? I expect a bit of a petrol price drop in January 2022. Then by start of March 2022 government will increase its share of the petrol price, and we’ll see the price increase again…
 
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Forget fuel price woes…. Red Hot Storm Trader is hot hot hot!
 
Timon’s had a phenomenal trading quarter with the following super gains and only one loss….
 
  •  Aspen for a 28.02% gain in just 38 days.
  •  Anglo American for a 63.39% gain in 9 days.
  •  Spar for a 25% gain in 10 days.
  •  BHP Billiton for a 73.12% gain in 5 days.
  •  First Rand Bank for a 5.83% gain in 15 days.
  •  Spar for a -28.40% loss in 28 days.
  •  Standard Bank for a -29.29% loss in 6 days
  •  Discovery for a 15.58% gain in 6 days.
  •  JSE All Share Index for a 20.83% gain in 20 days.

If you had dropped R5,000 into each of them, you’d be sitting on 174% in pure gains right now.
 
So it’s easy to see why my proven system is exactly why a man named Steve stayed with me past the trial period. His total gain was more than R12,500 in one month from a single recommendation.
 
And it’s why a gentleman named Tom told me:
 
"According to my calculations, I've just made 174% over the last two months. Thank you and keep up the good work!"
 
Then, I got an email from Sharon V who said:
 
“I made a 21% return and R3,000 in a few days. Thank you!”
 
 
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The oil price is likely to continue rising
 
JPMorgan says oil prices will continue to rise. The bank expects oil to hit $150 a barrel by 2023 as OPEC controls the price of the commodity.
 
With demand for oil likely to remain steady, supply will remain the key driver behind oil prices for years to come. And with OPEC+ "being firmly in the driver's seat for oil prices,"
 
JPMorgan thinks Brent will hit $120/bl in 2022, and could even overshoot to $150/bl in 2023, representing potential upside of as much as 100% from current levels.
 
"We believe OPEC+ will defend the oil price with paced volume growth to keep inventories low, markets in balance and reservoirs well managed," JPMorgan explained.
 
Why OPEC has all the pricing power right now
 
The popularity of oil as fuel source is at an all time low as renewable energy mania takes hold in the US and Europe.
 
This has led to the fact that US oil rigs are at about HALF the count they were at in 2019.
 
At the same time – the US is seeing cancellation of major oil and gas pipelines that would’ve helped its own industry expand. Without these pipelines it will be more dependent on imports going forward.
 
On the campaign trail, US president Biden vowed to block new oil and gas permitting on public lands and waters. And more than 50 groups insisted in a June 2021 letter that the president should expand his campaign commitment to “not only end the federal leasing programs, but to wind down existing federal oil and gas production.” Activists blasted the administration’s decision to conduct the Gulf of Mexico lease sale, which was rescheduled in the face of a potential contempt of court citation.
 
At the same time – the amount of spending on exploration in the oil and gas sector is crashing.
 
Exploration spending as % of total investments
 
Here you can see from the chart supplied by the International Energy Agency – the share of exploration spending in the oil and gas sector is dropping.
 
Added to this the US is mulling over increased royalties on oil and gas extraction and there’s a lot of pressure on the oil price.
 
Sure – it’s likely oil will be phased out as a fuel source in the next decade or two. But the fact is we still need the stuff. And for the time being the demand is growing – but the supply isn’t.
 
 
How investors should view this?
 
 
In South Africa the biggest driver behind our inflation outlook has always been the fuel price.
 
We import all the oil we need. We don’t have a functional rail sector – so road transport is used for nearly everything. So, all goods prices are sensitive to transport costs.
 
High inflation equals higher interest rates.
 
That means a couple of things…
 
I’d be cautious about residential property in the coming three years. If interest rates are hiked, buyers that bought property whilst interest rates were low are going to be in trouble.
 
At the same time – this will put more pressure on retailers.
 
I suspect retailers will do ok. But there will be higher margin pressure on food producers like Tiger Brands, Libstar, as well as the poultry producers who need to deal with high input costs.
 
This’ll definitely be a boon for Sasol – if government doesn’t kill it with carbon taxes. And, if the oil price does rise to $150 as JPMorgan predicts – you have to ask yourself if the incentive to switch over to oil alternatives won’t grow even bigger, even faster…
 
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Why the rising petrol price is here to stay
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