Good news for petrol prices in January

Weekly data from the Central Energy Fund (CEF) shows that motorists in South Africa will be entering the new year with a much lower petrol price – and an even bigger cut on the cards for diesel.

According to the CEF’s data for 16 December 2022, motorists can expect a petrol price cut of around R1.93 per litre in January 2023, while diesel could be cut by as much as R2.83 per litre.

The lower prices are being driven by much lower international product prices as well as strength in the rand relative to the US dollar.

These are the changes you can expect, at the end of week 2 in December.

• Petrol 93/95: decrease of R1.93 per litre
• Diesel 0.05%: decrease of R2.73 per litre
• Diesel 0.005%: decrease of R2.83 per litre
• Illuminating paraffin: decrease of R2.16 per litre

A drop in oil prices is the biggest contributor to the equation, reducing international product prices by between R1.80 and R2.70 per litre in the local formula. The rand, which has recovered from political instability in recent sessions, is contributing to a 12 to 15 cents per litre drop.

According to Bloomberg economists, oil markets endured a choppy start to the week as the outlook for global growth in the face of interest-rate hikes was weighed against a pledge from China to revive consumption as Covid-Zero is abandoned.

Brent crude fluctuated and traded near $80 a barrel after losing more than 4% in the final two sessions of last week. Trading volumes were below the 30-day average for both the global benchmark and West Texas Intermediate, the group said.

Oil markets have been dominated by two contrasting narratives in recent months – the first being the threat of supply constraints due to sanctions on Russia and OPEC+ nations cutting production (favouring higher prices), and the second being low demand from China and no supply issues from the Russian actions (favouring lower prices).

According to Bloomberg, despite looming higher consumption from China, oil is still headed for a second monthly loss as concerns about recessions in the US and Europe mount, with central banks continuing to tighten policy.

In addition, Russian flows have so far proved to be resilient as a price cap imposed by the Group of Seven and European Union hasn’t led to major disruptions. Among major buyers, India said it doesn’t expect problems.

“The prospect of further rate rises will hit economic growth in the New Year and, in doing so, curb demand for oil,” said Stephen Brennock, an analyst at brokerage PVM. “China’s recovery will not be a swift affair, with the situation likely to get worse before it gets better.”

The rand’s story, meanwhile, is a positive one for local prices.

Despite the local unit struggling under mounting political uncertainty in recent weeks, a solid victory by president Cyril Ramaphosa at the ANC’s 55th elective conference, where he secured a second term as party president, has calmed market jitters.

The rand recovered over 2% following the announcement on Monday (19 December), bringing the unit back to the R17.20 range.

While this is still a far cry from the sub-R17 levels seen before Ramaphosa’s position was brought into question with the Phala Phala report, the rand is still far off from the R18.30-plus levels seen in October and early November.

Provided the currency remains at current levels, or gets stronger against the dollar, the rand will continue to support lower prices at the pumps.

Two more weekly forecasts remain until the end of 2022, with the Department of Mineral Resources and Energy expected to make an announcement on the official changes before they come into effect on Wednesday, 4 January 2023.

With Bloomberg

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