Global oil prices tanked 30% on Monday, following a shock flare up of a price war between Saudi Arabia and Russia, which translated to an immediate R1 per litre drop in the price of international products for South African fuel.
However, some of this was undone by a much weaker rand.
The oil price crash proved to be double-edged sword for economies: for petrochemical companies like Sasol, it was a dark Monday, where the group saw 45% of its market value wiped in a matter of minutes. This was exacerbated by the global coronavirus outbreak, which sent investors into a panic, sending global markets tumbling.
But the oil price movement was good news for anyone using petroleum products, including motorists, and Eskom, which is currently using diesel-powered generators to help alleviate its energy woes.
The latest data from the Central Energy Fund provides some indication of what impact the oil price drop has had on international product prices, and in turn the resultant effect on the over- or under-recoveries in the local fuel price.
The data shows that the drop in prices led to a 91 cents per litre to 102 cents per litre over-recovery in the petrol price, and a 115 cents per litre over recovery in price of diesel.
However, the over/under-recovery is impacted by more than just international petroleum prices, and the rand/dollar exchange rate also has to be taken into account.
On Monday the rand collapsed to its worst levels in four years, translating to around 23 cents per litre being cut out from the benefit of lower oil prices. The balance, then, would have been a pump price reduction of between 69 and 78 cents per litre for petrol, and 91 to 92 cents per litre for diesel.
The table below shows how these events impacted the balance of fuel prices:
|Fuel||Movement in international product prices||Movement in exchange rate||Average unity over(under) recovery|
While it’s interesting to see the affect of oil price changes on local costs, it’s too early in the month to celebrate lower fuel prices.
Current prices and market conditions would need to persist to the end of the month.
The oil price has already begun to show signs of recovery on Tuesday, with the price of a barrel of crude climbing from $30 to around $35. The rand, meanwhile, has also pulled back in early trade.
With such volatility and uncertainty in the market, a possible change for April 2020 is extremely difficult to predict.
As of April 2020, new fuel tax changes will also come into effect, which will see a further 25 cents added onto the pump price.