2023 off to a great start for petrol prices

 ·5 Jan 2023

On top of a R2 petrol price cut taking effect this week, a lower oil price and a stronger rand are lining motorists up for another sizeable cut in February.

While it is still too early in the month to call prices for February 2023, early data from the Central Energy Fund (CEF) is pointing to another price cut for petrol and diesel so far.

The daily snapshot – which is not predictive but rather indicative of prevailing conditions – shows a R1 per litre over-recovery for petrol and around R1.70 per litre for diesel.

If current market conditions persist to the end of the month, these are the broad fuel price changes that motorists can expect.

Things may go even better for fuel prices, however, with oil prices tanking this week, while the rand has climbed to a four-month high against the US dollar.

Oil prices

Oil prices tanked around 9% this week, as demand concerns dug into the market. On Thursday, the spot price of Brent Crude dropped below $80 a barrel, trading at $79.

According to Bloomberg analysts, a surge in Covid-19 cases across China has been clouding the near-term demand outlook, overshadowing optimism that commodity consumption in the world’s top importer will eventually rebound.

This has been exacerbated by thin liquidity, which has left oil futures prone to wild price swings, Bloomberg said.

“Investors are also weighing cautious commentary from the Federal Reserve meeting last month, which affirmed its resolve to bring down inflation without slowing the economy too much.”

Oil prices have been relatively volatile over the last few months, shifting between two main narratives. A looming global recession – with major economies in a slowdown – has been winning out as the prevailing narrative, painting a grim picture for oil demand. This narrative favours lower prices.

While oil prices have been somewhat artificially boosted by oil-producing nations, particularly OPEC+, threatening to cut daily supply by millions of barrels a day, oil spreads are signalling ample near-term supply, Bloomberg said.

However, uncertainty still persists, particularly as Russian oil supplies are being curbed by sanctions due to its invasion of and war with Ukraine.

Rand strength

The other main component in the fuel price – the rand/dollar exchange rate – has also had a favourable start to 2023.

The rand hit its strongest point in four months against the dollar on Wednesday, trading at R16.82 against the greenback, as markets awaited the minutes from the US Federal Open Market Committee (FOMC) meeting.

According to traders at TreasuryOne, emerging markets benefitted from the softer dollar, with the exception of the Brazilin Real, as markets looked for any indication of where the US Fed would go after a year of significant rate hikes.

In the face of a global recession, smaller markets like South Africa will likely be taking direction from major economies, as was the case for much of 2022.

A better indication for the direction fuel prices will take in February 2023 will be published by mid-January, with the CEF also publishing weekly forecasts to keep motorists informed.

Read: Here is the official petrol price for January

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