Big jump in petrol prices coming next week – but some good news may lie ahead
South African motorists are all but guaranteed to see a sizeable jump in petrol and diesel prices next week, but economist Dr Francois Stofberg says that prices could be softer in the months after.
This is thanks to a stronger rand, he said, and if global oil prices can stick to their current range of $75-$85 a barrel,
According to Stofberg, South Africans received some welcome news (in June) when the unleaded petrol price (95) fell by 17 cents a litre, while 93 was lowered by 24 cents a litre.
The drop was due to a relatively flat oil price and the rand coming down from record highs against the dollar.
At the time of the June adjustment, the average rand-dollar exchange rate was R18.68/$, slightly lower than the R18.98 seen during May/June.
The rand has recovered even more since then, settling well under R18.00 to the dollar, currently sitting at around R17.55. The latest data from the Central Energy Fund shows that this has helped contribute to a 24 cents per litre over-recovery for fuel prices.
According to analysis by TreasuryOne, the rand has stages a “remarkable” recovery in recent weeks backed by a slide in the US dollar. This has seen a return of flows in the local bond market, which was void of inflows for more than a month, previously, it said.
“The rand has stayed the course even after the MPC of the SARB kept rates unchanged last week after raising the interest rates eleven times in a row. This latest choice by the MPC was taken against the backdrop of softening inflation and the fact that the South African economy is struggling and further hikes could place massive strain on the South African consumer.
“Further, the rand’s help came in the form of China announcing that it will look to some policy easing to help its slowing economy. Some of the contagion tailwinds will be caught by the rand which could help the local unit,” the group said.
TreasuryOne said that the rand is likely to stick to its current levels, but is expected to “run out of steam soon” as gains are more difficult to come by. But even so, the weakness of previous months is not being forecast either. This will help greatly when it comes to local fuel prices.
The big question, then, turns to oil.
Stofberg noted that global oil prices have generally fallen in 2023, mostly owing to fears about a global economic slowdown (reducing demand) and oil-producing countries not cutting productions as expected (bolstering supply).
However, July has seen the oil price climb quite significantly, pushing close to $84 a barrel and leading to a 50 to 91 cents per litre under-recovery in fuel prices.
A tightening supply outlook, along with signs that top importer China may move to stimulate its economy further, has helped crude rally over the previous few weeks, Bloomberg analysts said.
“Hawkish monetary policy in the US and Europe and lacklustre growth in China had weighed on prices earlier in the year.”
This is setting the country up for a petrol and diesel price hike in August, which should be announced in the coming days to take effect next week Wednesday (2 August).
Petrol should be going up by around 30 cents per litre, while diesel is in for a 67 cents per litre hike, according to the CEF’s data.
Despite this, Stofberg noted that oil prices seem to be settling in a range between $75 and $85. When considered with the rand, at levels below R18.00/$, “this means that we might even have more petrol price cuts in the upcoming months,” he said.
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