Mid month data published by the Central Energy Fund points to yet another petrol price hike in May – though at lower levels recorded over the last few months.
The CEF data shows an under-recovery for both 93 and 95 petrol, with prices expected to rise between one to six cents per litre. Diesel drivers however, can expect a reprieve from price hikes, with the CEF showing an over-recovery for 0.05% and 0.005% at around 32 cents per litre.
- Petrol 95: increase of 6 cents per litre;
- Petrol 93: increase of 1 cent per litre;
- Diesel 0.05%: decrease of 31 cents per litre;
- Diesel 0.005%: decrease of 32 cents per litre;
- Illuminating Paraffin: decrease of 26 cents per litre.
While the mid-month data serves as a snapshot, the Department of Energy makes adjustments based on a review of the full period. Furthermore, the outlook can change significantly before month-end.
The mid-month prices provide a strong indication of moving trends, however. Prices are affected by two main components – the rand/dollar exchange rate, and changes to international petroleum product costs, largely driven by oil prices.
At mid-April, the ZAR/USD exchange rate is contributing to an over-recovery of around 16 cents per litre – however, changes to international product prices are leading to diverging trends for petrol and diesel.
Product prices for petrol have remained high, but flat, contributing to an 18-23 cents per litre under-recovery in the price. However, prices for diesel and illuminating paraffin have dropped significantly, hence the 16 cents per litre over-recovery.
The rand has enjoyed relative stability over the last month, trading in a narrow range below R15.00 to the dollar.
The local unit has been riding some momentum on the international front, not giving much sway to the influence of local events. In recent sessions it has traded at the best levels since the start of the Covid-19 pandemic and lockdown.
According to Bianca Botes, executive director, Citadel Global, however, this steam may be running out. On Wednesday, the currency showed little interest in local or global events, as it struggled to stay below R14.50/$, “with momentum clearly out of the picture,” she said.
The rand’s strength has not been rooted in local events or the state of the economy – which remains weak on fundamentals, and stagnant on the policy and reform fronts. Instead, it has been boosted by the ebb and flow of news out of major international markets.
Investors have been bearish on strong economic recovery forecast in the US, which has pushed risk-on assets benefitting South Africa. However, sentiment can swing wildly – particularly with other economies facing lockdown turmoil – which can push appetite for risk in the opposite direction.
Economists say that the rand will remain in an “erratic” state as a result, with Botes also pointing to the extension of the state of disaster in South Africa being a local factor constantly hovering over market sentiment.
Despite the risk of volatility, the rand has trended lower vs the dollar, which has supported reductions in the basic fuel price over the last month.
The price of international products used in the refinement of petroleum have been sustained at elevated levels, following a sharp spike at the end of February.
These prices are mainly affected by the international oil price, which has climbed steadily since the start of the year, but has since settled into a ‘wait and see’ mode, according to analysts.
Crude rallied strongly in the opening months of 2021, supported by the vaccine-aided recovery from the pandemic and the decision by the Organisation of Petroleum Exporting Countries (OPEC) and its allies to keep a tight rein on supplies.
Oil prices are now trading at between $63 (WTI) and $67 (Brent Crude) a barrel – compared to the $50 dollar mark seen in December, and down from $70 a barrel in March.
Prices are being sustained at high levels due to a drop in inventories and increasing demand. However, views are tempered by the fact that more supply is on its way in the coming months.
“Oil had been stuck near $60 a barrel after a rally faltered in mid-March amid a resurgence in virus cases in some regions,” Bloomberg reported.
“While the International Energy Agency sees a temporary lull in the market due to the renewed outbreaks, it followed OPEC in boosting its demand estimates for this year as the economy rebounds from the pandemic.
“The market will soon have to deal with more supply, however. OPEC+ and US producers are set to start adding extra barrels from May. Another wildcard is Iran, which is seeking to revive a 2015 nuclear deal and have US sanctions removed to lift crude exports, but progress on that remains uncertain.”
Analysts warn that Europe is still in the throes of Covid constraints and India is plunging into a deadlier second wave, which will undoubtedly have an impact on industry and demand.
This is how the increases will reflect at the pumps:
|Fuel (Inland)||April official||May expected|
|0.05% Diesel (wholesale)||R14.77||R14.46|
|0.005% Diesel (wholesale)||R14.80||R14.48|