Great news for petrol prices in South Africa
Fuel recovery data for the end of the second week in October shows that South African motorists are on track for bigger petrol and diesel price cuts next month.
According to the latest data from the Central Energy Fund (CEF), fuel price recoveries have tipped heavily in motorists’ favour from the early strong start last week.
The over-recovery for petrol prices at the start of the month has grown to between 55 and 57 cents per litre.
The small over-recovery for diesel at the start of the month has grown substantially to 21 cents per litre.
Another positive turn in recoveries is for illuminating paraffin, which started the month with a small under-recovery (in line for a price hike) and has now moved to an over-recovery.
These are the projected price changes at the start of the month:
- Petrol 93: decrease of 42 cents per litre
- Petrol 95: decrease of 38 cents per litre
- Diesel 0.05% (wholesale): decrease of 6 cents per litre
- Diesel 0.005% (wholesale): decrease of 4 cents per litre
- Illuminating paraffin: increase of 3 cents per litre
The main driver behind the over-recoveries is the lower global oil price, which has continued to settle below $65 a barrel.
This follows volatility, albeit in a tight range, in September, where prices fluctuated between $66 and $69 a barrel.
According to Bloomberg’s analysis of the market, oil prices saw their biggest decline in a week on cautious optimism around easing tensions in the Middle East and the outlook for supply.
Israel this week approved a framework that would see Hamas release hostages in exchange for prisoners, a major step forward for a peace agreement to end the bloody conflict in Gaza.
The hostilities have destabilised the Middle East, and progress toward a peace deal could siphon the remaining war premium out of prices, Bloomberg said.
This comes just as the market faces pressure from a looming surplus into year-end, where OPEC+ nations agreed to raise production quotas again to reclaim market share.
The combination of events has pushed oil prices lower, currently trading at $64.80 a barrel, and leading to an over-recovery of around 7 cents per litre for diesel and 43 cents per litre for petrol.
Rand strength adding more joy
The other main driver of the over-recoveries is the stronger rand, which pushed a 12-month best this week at R17.12/$.
While the currency has weakened to around R17.20/$ on Friday, the local unit remains in a much stronger position against the dollar than last month.
The rand has also gained against the dollar overall this year, having started at R18.82/$, appreciating 8.7% to its current levels.
This has come against the backdrop of heightened global uncertainty due to the Trump trade wars, geopolitical conflicts in the Middle East and Europe, and local politics and economic blows.
However, economists have noted that the rand’s strength isn’t necessarily due to anything positive happening in South Africa, but rather due to overall dollar weakness.
Also, in the context of the broader dollar depreciation this year (circa 13%), the rand’s gains against the greenback don’t quite match up on a net basis.
As Investec chief economist Annabel Bishop noted: “The US dollar has weakened this year by more than the rand has strengthened against it.”
She added that, on a trade-weighted basis, the rand is unchanged since the start of the year, with one of the key contributions of the rand being to mute imported inflation from fuel and agricultural food prices.
The rand has also traded flat or weaker against other major currencies, showing where the true balance lies.
Nevertheless, with oil and petroleum trades happening in dollars, that’s the exchange that counts for motorists.
The stronger rand is adding around 14 cents per litre to the over-recovery for petrol and diesel.
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