Expect an even bigger drop in diesel prices next week
Month-end data from the Central Energy Fund (CEF) shows that continued price drops in global oil and a stronger rand are likely to translate to an even bigger drop in diesel prices next week – while the expected petrol price hike will be much lower.
The data shows that diesel prices are expected to come down by around R1.55 a litre, while petrol prices are expected to increase still, but by 30 cents per litre, rather than the R1.00 projected at the middle of the month.
Prices for illuminating paraffin have also reversed – from an expected hike in December, to a drop of almost 50 cents per litre.
Fuel price adjustments for December will take effect from Wednesday, 7 December, with an announcement on the official changes expected from the Department of Mineral Resources and Energy any time before then.
According to Investec chief economist Annabel Bishop, the turn in fortunes for motorists is mainly due to much lower oil prices.
“After a sharp rise this year in energy prices, the Brent crude oil price has dropped over November, from US$98 a barrel to US$83 a barrel (this week), on concerns over slowing global demand,” she said.
This has reduced the petrol price increase building for December, she noted.
Rising energy costs have been one of the biggest contributors to high levels of inflation in South Africa and around the world. Prices shot up due to the ongoing war between Russia and Ukraine, which also impacted international food prices.
Inflation ticked upward to 7.6% in October, surprising the market, but Bishop said that this is likely short-lived.
“November is a low survey month while international food prices fell -2.9% m/m and the petrol price only saw a small uptick.”
While headline inflation in South Africa is still likely to end the year at a still-elevated level, at 6.8%, oil prices could fall further, Bishop said. This is due to the slowdown in China – which has already weakened prices – amid renewed concerns about the severity of the likely global recession.
This could, however, spur oil-producing nations and cartels into action, putting a risk on prices for January, Bishop said.
“G7 nations are seeking a price cap on imports of Russian oil, and the EU bans crude oil imports from Russia on 5th December. OPEC+ (Organization of the Petroleum Exporting Countries) and associated producers, including Russia, meet on 4th December.
“With supply outpacing oil demand currently, there is a risk that the oil cartel and allied oil exporting countries lower supply, which could risk higher petrol and diesel prices in January,” she said.
Bishop said that, as South Africa is an importer of oil, the direction of fuel prices will be a key determinate on inflation in the year ahead. 2023 is expected to see CPI inflation average 5.1% y/y, although the risks are wider, to both the down and upside for next year, with inflation volatile.
Aside from oil, the projected fuel price changes for December are also being supported by a stronger rand, which strengthened to under R17 to the dollar again this week.
As has been the case for much of the year, the rand’s strength comes from a weaker dollar more than any local factors. According to Reuters economists, the dollar was down around 0.2% against a basket of currencies on Wednesday, as investors braced for comments later from Federal Reserve Chair Jerome Powell and a key monthly jobs report due at the end of the week.
TreasuryOne said that the local currency needs to break the R16.90 level to see possible further strength to R16.75 levels, “however, traders will be wary of Friday’s non-farm payrolls data”, it said.
On Wednesday, the rand was trading at the following levels against major currencies:
- ZAR/USD: R16.93
- ZAR/EUR: R17.56
- ZAR/GBP: R20.34
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