Warning for petrol prices in April
Petrol prices in South Africa are showing another hike on the cards in April, with the first week of March showing pressure on both the rand and global oil prices.
While the start of the month is squarely in “too soon to tell” territory – and market conditions can change significantly in the weeks ahead – early data can point to which indicators motorists need to keep an eye on for any forward planning.
The latest daily snapshot from the Central Energy Fund shows that the under-recovery in fuel prices seen in February has carried over to March, with both the weaker rand (for diesel and petrol) and oil price (for petrol) contributing to higher costs.
At the end of the first Friday in March, petrol prices show an under-recovery (this potential hike) of 56 cents per litre, while diesel is showing an under-recovery of 6 to 9 cents per litre.
The main driver behind the market pressures at present is the weak rand – although international product prices for petrol are also a big sticking point.
The rand has been trading in a more stable environment since a rocky end to February. However, the local unit has stabilised above R18 to the dollar, which is a significant weak point.
The rand’s weakness comes from a double blow: the dollar is trading stronger, and local factors like persistent load shedding and South Africa being greylisted (increasing the risk of trade) are being priced into markets.
According to economists at Nedbank, the rand ended last week on firmer ground.
“The support came from a softer US dollar and a resurgence in global risk appetites following dovish comments from a key Fed official. This followed six weeks of depreciation against the US dollar, with the rand trading at a significant discount to other emerging market currencies,” the bank said.
Despite this slight positivity, the rand is still trading 6.3% weaker against the dollar, year to date, and down 3.8% over the last four weeks.
The dollar’s softness is also expected to be temporary, given that markets are awaiting data from the US Fed this week.
According to TreasuryOne, the big news this week will be Friday’s US non-farm payrolls and unemployment numbers.
“Markets expect a jump of between 200,000 and 240,000 new jobs in February versus January’s massive 517,000 number, while unemployment is expected to be steady at 3.4%. Any print in excess of 250,000 would put pressure on the Fed FOMC to hike more aggressively and push the dollar stronger,” the group said.
Meanwhile, the odds remain stacked against the rand. This week, Stats SA will present its GDP figures for the fourth quarter of 2022, with economists and analysts expecting a quarterly contraction.
The economy is expected to have suffered immensely from non-stop load shedding, implemented since September 2022. Trading conditions deteriorated even further in early 2023, according to Nedbank, with forecasts for Q1 2023 also pointing to a contraction, signalling a technical recession.
These figures are likely to keep the rand under pressure. Investec chief economist Annabel Bishop warned last week that the currency’s forward outlook has weakened on the greylisting of South Africa by the Financial Action Task Force (FATF).
While the move was largely already priced into the market, the currency is now more susceptible to negative shocks and pressure from the US economy.
Oil
International product prices also show a mixed environment, according to an analysis from Bloomberg.
According to the group, oil has held within a tight $10 range since the start of the year, whipsawed by optimism over China’s recovery and expectations of further interest rate hikes from the US Federal Reserve.
Saudi Arabia has signalled confidence in the near-term outlook, raising most of its prices for crude shipments to Asia and Europe for April, Bloomberg said.
However, prices have eased in recent sessions – currently trading around $85 a barrel – due to “modest” growth ambitions from China and the prospect of tighter US monetary policy, it said.
“Investors will be watching speeches from Fed Chair Jerome Powell and jobs data this week for clues on the path for monetary tightening. Federal Reserve Bank of San Francisco President Mary Daly reiterated in a speech on Saturday the central bank’s willingness to leave borrowing costs higher for longer,” it said.
China announced a goal for gross domestic product of around 5% at the annual National People’s Congress on Sunday, lower than economists had expected. The nation, the world’s largest oil importer, ended its restrictive Covid Zero policy late last year.
However, should China overshoot its target, and sanctions on Russia play out and the country is forced to cut production, higher prices are on the way.
“The GDP forecasts from China were a rather low target and may be a potential reason for oil’s weakness today,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “But we expect China will come in a bit above target. If Chinese imports rise and Russian production falls, prices should move higher from here.”
While both the rand and oil price risk pushing local fuel prices higher, one piece of good news for South African motorists is that at least fuel taxes will not be hiked.
Read: How much it costs to drive South Africa’s most popular cars after the latest petrol price hike
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