Petrol price drop expected next week – but it’s bad news for diesel

Month-end data from the Central Energy Fund shows that petrol prices are likely to come down slightly in May – but diesel car owners are in for another big hike.

The data, which serves as a snapshot of market conditions as of 27 April 2022, shows that the petrol price could decrease by 14 or 15 cents per litre in May. Diesel, however, is showing an under-recovery of around 90 cents per litre.

At mid-month, petrol drivers were set for a 34 cents per litre drop, and diesel drivers were in line for a 67-71 cents per litre increase. The main driver behind the negative trend in the data is a softer rand.

The month-end snapshot is as follows:

  • Petrol 95: over-recovery/decrease of 15 cents per litre;
  • Petrol 93: over-recovery/decrease of 14 cents per litre;
  • Diesel 0.05%: under-recovery/increase of 94 cents per litre;
  • Diesel 0.005%: under-recovery/increase of 89 cents per litre;
  • Illuminating Paraffin: under-recovery/increase of 82 cents per litre.

The Department of Energy has stressed that the daily snapshots are not predictive and do not cover other potential changes like slate levy adjustments or retail margin changes, which are determined by the department at the end of the month, taking all variables into account.

The Department of Energy makes adjustments based on a review of the whole period and will announce the official changes before they come into effect on Wednesday, 4 May.

On April 6, the petrol price increased by R0.36/litre – a much smaller adjustment than was feared for much of the preceding month.

Fuel prices are affected by two main components – the rand/dollar exchange rate and changes to international petroleum product costs, primarily driven by oil prices. For April and May’s prices, however, the government has intervened to combat rising fuel costs.

National Treasury announced the interventions in April to counter the rising cost of fuel as a result of the Russian invasion of Ukraine. This intervention saw a reduction of R1.50 in the general fuel levy, which remains in place until the end of May.

According to an analysis by professional services firm, PwC, the reduction of the general fuel levy would reduce fuel costs by at least R10 billion over the coming year – and this money has been put back in drivers’ pockets. However, this is only a temporary fix.

Fuel prices have escalated since the start of the year, driving up consumer price inflation, and adding mounting pressure to households that are already struggling to make ends meet.

Consumer price inflation has been elevated since late last year. A combination of base effects and higher commodity prices pushed headline inflation towards the top end of the central bank’s 3%-6% target range from December 2021 to the present.

Headline inflation was most recently measured at 5.9% in March from a reading of 5.7% y-o-y in the preceding two months. This included a 7.2% m-o-m and 33.2% y-o-y increase in fuel prices during March.

The main driver of this was an increase in international fuel prices, with Brent crude oil prices reaching near $100/barrel at the end of February as the Russian invasion of Ukraine ruffled commodity markets.

“It is important to note that March’s inflation data was surveyed early in the month. As such, this data does not yet reflect a significant impact on consumer prices from the global supply disruptions caused by the Russian invasion of Ukraine,” PwC said.

The rand was boosted by commodity prices over the period, but this trend has since reversed as the rand weakened significantly against the dollar, approaching the R16/$ mark on Thursday. While the currency has not broken through those levels – currently trading at R15.89/$ – it remains on the back foot.

Global oil prices, which peaked at over $130 a barrel in March, are currently around $108 a barrel.

Read: A ‘perfect storm’ has hit the rand – and it will have an impact on petrol prices in May

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Petrol price drop expected next week – but it’s bad news for diesel