Bad to worse for petrol prices in South Africa
A weaker rand and even higher oil prices are ending the week on a sour note for drivers in South Africa, who are now facing record-level petrol prices in October.
Global oil prices took a turn for the worse on Friday, rising to almost $110 a barrel as the conflict in the Middle East escalated.
According to Bloomberg reports, fighting between Yemen-based Houthi militants and Saudi-backed forces intensified in the region.
This stoked fears of deeper supply disruptions from the Middle East, compounding the ongoing conflict between the United States and Iran, as well as the strain from the Russia-Ukraine War.
Oil prices rose rapidly in overnight trade, approaching $110 a barrel, before retreating to around $106 a barrel early on Friday (11 September).
The Houthis have gained ground in their attempt to seize Mokha near the southern end of the Red Sea, according to several analysts, with some saying the Yemeni port city has been captured.
The Iran-backed militant group has already disrupted shipping and oil markets in recent years via its control of the port of Hodeida and other territory near the strait.
Gaining Mokha would allow it to take control of a second important port in the area and further tighten its grip on the waterway, Bloomberg said.
Oil-product exports through the Strait of Hormuz have been slowly recovering, but the pace hasn’t been enough to prevent a surge in fuel prices that is squeezing consumers around the world.
With prices over $100 a barrel once more, fuel recoveries in South Africa—a net importer of petroleum products—have been hit hard.
The latest data from the Central Energy Fund (CEF) for the end of the week shows fuel price recoveries deep in the red for both petrol and diesel.
Both fuel types are now looking at an increase of R2 per litre, set for October, which would push petrol prices, in particular, to a new record high.
These are the latest recoveries:
- Petrol 93: increase of R2.02 per litre
- Petrol 95: increase of R2.14 per litre
- Diesel 0.05% (wholesale): increase of R1.71 per litre
- Diesel 0.005% (wholesale): increase of R2.05 per litre
- Illuminating paraffin: increase of R2.18 per litre
No rescue from the rand
The picture has suffered another blow from the weaker rand.
While the rand remains uncharacteristically resilient against the US dollar, trading stronger than the post-war weakest levels around R17/$, it has weakened.
After dipping below the R16/$ level earlier in the month, the unit is currently back around R16.20/$, as a stronger dollar and higher oil prices weighed.
Like other risk-sensitive currencies, the rand has been driven by global market sentiment, particularly since the start of the US-Iran war in February.
However, the rand has also benefited from a shift in sentiment towards South Africa and its economic prospects.
The rub is that markets are also responding to domestic economic developments, which haven’t been shining this week.
Data from Statistics South Africa showed mining output fell 7.5% year on year in July, while manufacturing output rose only 1.1%.
Analysts polled by Reuters had expected mining output to fall 2.8% and manufacturing output to slip 1.6%.
Separately, the Reserve Bank said the country recorded a current account deficit in the second quarter following a strong surplus in the first three months of this year.
The deficit came as the war in Iran drove import costs sharply higher. As a result, the rand is now also facing headwinds, down close to 1% from its previous close.
In the context of South Africa’s fuel price recoveries, the consolation is that the rand/dollar exchange is still offsetting the under-recovery from rising oil prices.
However, this is only 15-20 cents per litre across fuel types—a small cut compared to the R2.00 to R2.30 bite from oil.
Should these market conditions persist over the next few weeks, motorists will be in for major pain at the pumps in October.
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