Mid-month data from the Central Energy Fund points to another small drop in petrol prices in July – though diesel vehicle owners can expect a further hike.
The CEF data shows an over-recovery for both 93 and 95 petrol, with prices expected to drop between 3 and 6 cents per litre. Diesel drivers, meanwhile, can expect an increase of around 19 cents per litre for 0.05% and 0.005% sulphur.
- Petrol 95: decrease of 6 cents per litre;
- Petrol 93: decrease of 3 cents per litre;
- Diesel 0.05%: increase of 19 cents per litre;
- Diesel 0.005%: increase of 19 cents per litre;
- Illuminating Paraffin: increase of 14 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-June, the stronger ZAR/USD exchange rate is contributing to an over-recovery of around 23 cents per litre – however, changes to international product prices are swallowing up the bulk of those gains, leading to diverging trends for petrol and diesel.
Product prices for petrol have increased, contributing to a 17 to 20 cents per litre under-recovery in the price. Prices for diesel and illuminating paraffin are showing a 42 cents and 35 cents per litre under-recovery.
The rand has enjoyed an extended strong run against the US dollar over the last few weeks, hitting its strongest point in two years at R13.42 at the start of June. The unit is currently retreating from this position, but is still stronger month-on-month, sitting below R14.00 to the dollar.
Much of the rand’s strength is as a result of international factors, rather than domestic indicators.
Stronger than expected GDP data and the slow acceleration of the Covid vaccine rollout has been undercut by continued power supply issues and load shedding, as well as South Africa entering its third wave of Covid-19 infections.
Internationally, however, markets were thrust into a risk-on environment – favouring emerging markets – as Covid tensions eased overseas, and central banks in the US and Europe providing inflation data pointing to looser monetary policies, for the time being, spurring positive sentiment.
Commodities have also been in demand across the globe as industries start coming back online and target pre-Covid levels, boosting the rand significantly.
The rand started this week on the back foot, however, as investors have begun to pull out of riskier markets.
“We tend to think that local elements affect the rand, however, now more than ever, local elements are really on the back burner.
“South African politics, and even economics are really playing second fiddle to the global environment and events,” said Bianca Botes, director at Citadel Global.
International product prices
Oil prices have climbed steadily since the start of the year, but settled into a ‘wait and see’ mode in April, which was largely maintained in May. In June however, the price has climbed above $71 a barrel as investors weigh the outlook for rising demand against extended anti-virus curbs in some economies, with officials tackling the challenge posed by more infectious variants, Bloomberg reported.
According to the Oil Producing Economies (OPEC), demand for oil is expected to increase by six million barrels a day, from lows seen in 2020. This is due to demand from the US and China, in particular.
This is expected to ramp up significantly in the second half of 2021 due to borders reopening in other growing economies. Oil producers, who have been cutting back supply to manage the Covid-driven slump in demand, are now being requested to ‘open the taps’.
“With the market focused on the demand recovery, there is the potential for further strength in the short term,” said Warren Patterson, head of commodities strategy for ING Group.
“Attention will soon turn to the OPEC meeting on July 1, with a possibly large supply increase ahead in August, given the group’s demand projections.”
Global oil demand will recover to pre-pandemic levels late next year, the International Energy Agency predicted last week, urging OPEC and its partners to keep markets balanced by tapping their plentiful spare production capacity.
Rising oil prices mean rising costs for petroleum products, which invariably means higher prices at the pumps. According to the CEF’s data, by mid-June petroleum prices were climbing steadily higher.
|Fuel (Inland)||June official||July expected|
|0.05% Diesel (wholesale)||R14.66||R14.85|
|0.005% Diesel (wholesale)||R14.71||R14.90|