Good news for diesel prices in South Africa
The latest weekly estimates from the Central Energy Fund (CEF) point to petrol pain for motorists in December – but there is good news for diesel following months of steep hikes.
According to the CEF’s weekly data to 18 November 2022, petrol prices are currently showing an under-recovery (thus a potential increase) of around 90 cents per litre for December. While this is still negative for motorists, it’s showing a reversing trend, down 30 cents from a week ago.
Diesel prices, meanwhile, have shown a turnaround in fortunes and are now projected to decrease by as much as 68 cents per litre.
The department stresses that the snapshot is not predictive but rather serves as a fuel price indication. As market conditions change throughout the month, so too do the forecasts.
These are the projected price adjustments at the end of week three of November.
- Petrol 93/95: increase of 90 cents per litre
- Diesel 0.05%: decrease of 68 cents per litre
- Diesel 0.005%: decrease of 60 cents per litre
- Paraffin: increase of 9 cents per litre
The turn in fortunes for diesel prices is largely thanks to a lower basic price driven by a drop in the oil market, boosted by a stronger rand versus the dollar.
The oil market fluctuated quite a bit in November, pulled to and fro by two opposing narratives on demand. The first narrative, supporting higher oil prices, has been one of greater demand for oil against a constrained supply.
As the northern hemisphere heads into the winter months, demand for fuel has increased. However, this comes against a backdrop of Russian oil being sanctioned due to its ongoing war with Ukraine, as well as a reduced supply from Saudi Arabia and OPEC+ nations.
The counter-narrative is one of much lower demand due to China – one of the world’s most industrious nations – pursuing a ‘zero-Covid’ strategy, shutting down production and industry in pursuit of the eradication of the virus.
While oil prices were supported by murmurings in the market of China easing up on restrictions, further outbreaks and the first recorded death due to Covid in several months have pushed the country to increase restrictions, dimming the outlook for productivity.
Global benchmark Brent fell below $87 a barrel after retreating by almost 9% last week.
The dip in oil prices is supportive of lower fuel costs locally, which have been further boosted by a stronger rand.
The rand has gained ground against the dollar in recent days, but not due to any local events or factors. As has been the case for most of the year, the rand – along with other emerging market currencies – has been shaken around at the whims of global markets.
This has largely been driven by the US Fed and interest rate hikes, with a sharp hike cycle pushing investors into a ‘risk-off’ mindset to the detriment of emerging markets, including South Africa.
In more recent comments, however, the Fed has eased up on its hawkish tone, with analysts expecting the pace of US interest rate hikes to slow down. It is still expected that the US will see a rate hike of 50bps in December.
The rand exchange rate appreciated further against the generally weaker dollar. The rand is now trading about R1/$ stronger than it did this time last month.
The Department of Energy will announce official petrol and diesel price adjustments before they come into effect on Wednesday, 7 December 2022.
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