South Africa’s petrol price could hit R25/litre in coming months: economist

Financial markets have been roiled in recent days by the escalating crisis in Ukraine, pushing up the Brent crude oil price past the $100/barrel mark and weakening emerging currencies such as the rand.

“For South Africa, which imports oil instead of exploring and extracting its own, higher oil prices would push up inflation substantially,” said Annabel Bishop, chief economist at Investec.

“The petrol price, already at R20/litre, could jump to R25/litre in the near term. A R1.26/litre increase is building for March – a figure that would be would be significantly higher were it not for some rand strength earlier in the month.”

South Africa’s trade surplus, currency and government finances have all benefited from the strong export value of commodity prices in the past eighteen months.

South Africa is a key commodity exporter – chiefly of metals, minerals and agricultural products – but an escalation in hostilities in Eastern Europe could see commodity prices falling as markets anticipate lower economic growth, Bishop said.

“OPEC+, however, keeps its oil prices high by quota controls and has already demonstrated supply shortage this year, bolstering the oil price above US$80/barrel even before the conflict began.

“Russia is a key oil and gas exporter, and there may be little coincidence in the timing of hostilities, with Ukraine now in the depths of the Northern Hemisphere winter and Europe heavily reliant on oil, coal and gas.”

The increased likelihood of war presages further supply shortages in an already tight market, Bishop said.

“Russia is expected to push its objectives and persists with its aggressions, but these could wax and wane on interactions with the US/UK and others involved in attempting a peaceful resolution.”

Oil and the rand 

Oil rose further in early morning trading on Friday (25 February) due to concerns that financial sanctions on Russia may impede global fuel supply chains, following a wild session in which prices spiked more than 9% before giving up gains, Bloomberg reports.

Brent crude climbed around 3% after surging above $105 a barrel at one point in Thursday’s dramatic trading.

Futures pared most of that advance as US President Joe Biden made it clear that Western powers were not willing to sacrifice their own economies to penalize Moscow for its invasion of Ukraine.

“The initial concerns that oil would be caught up in any sanctions on Russia has eased, resulting in prices pulling back from yesterday’s rally,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group.

“However, steep discounts being offered for Russian crude are still not receiving bids. This suggests there may still be some supply issues if banks can’t facilitate trade in the short term.”

The rand strengthened overnight after hitting the R15.50/dollar mark on Thursday following a major market sell-off.

At 07h25 on Friday (25 February), the rand was trading at the following levels again the major currencies:

  • Dollar/Rand: R15.27 (-0.46%)
  • Euro/Rand: R17.13 (-0.28%)
  • Pound/Rand: R20.51 (-0.11%)

Fuel review 

While South African motorists are expected to pay for a hefty increase in petrol from next week, the government has indicated that it will step in to review how the country’s fuel price is calculated.

In its Budget Review published on Wednesday (23 February), National Treasury said it will review South Africa’s fuel price calculations as motorists grapple with record-high petrol and diesel costs.

“The two largest components of administered price inflation – electricity and fuel prices – increased by an annual average of 8.2% between 2011 and 2021, placing financial strain on households.

“Regular reviews of prices and their underlying methodologies help policymakers understand inefficiencies in pricing models and additional costs imposed on society, and create incentives for competitive outcomes.”

The Automobile Asociation (AA) of South Africa described the government’s decision not to increase fuel levies and review the petrol price calculations as a landmark win for consumers.

“This is a landmark win for all consumers – not only motorists – and while fuel prices may still increase the additional burden of higher taxes is now out of the way. We are naturally extremely happy that our calls have been heeded.”

The AA said finance minister Enoch Godongwana’s announcement that he and Mineral Resources and Energy minister Gwede Mantashe have agreed to review all aspects of the fuel price is an equally welcome development.

Read: South Africa’s biggest fuel refinery is shutting down – and government is now looking to nationalise it

Must Read

Partner Content

Show comments

Trending Now

Follow Us

South Africa’s petrol price could hit R25/litre in coming months: economist