Bad news for petrol prices in South Africa
Fuel prices in South Africa have taken a turn, with current forecasts pointing to a petrol price hike in February.
Mid-month data from the Central Energy Fund (CEF) showed a small petrol and diesel price drop for February but pointed to a downward trend in the over-recovery of prices.
This downward trend has now turned the over-recovery into an under-recovery, flipping the script and indicating a possible price hike next month.
Data for the week ending 20 January 2023 shows an under-recovery of 25 to 32 cents per litre for petrol. For diesel, 0.05% sulphur diesel could be going up by 6 cents per litre, while 0.005% could still be coming down by 6 cents per litre.
- Petrol 93: increase of 32 cents a litre;
- Petrol 95: increase of 25 cents a litre;
- Diesel 0.05%: increase of 6 cents a litre;
- Diesel 0.005%: decrease of 6 cents a litre;
- Illuminating paraffin: increase of 8 cents a litre.
The daily snapshots from the CEF show current market conditions related to the fuel price. The official fuel price adjustment takes a bigger view of conditions throughout the month and includes additional changes like levy adjustments.
Despite this caveat, the snapshots give a good idea of where fuel prices are heading.
The main contributor to the turn of events is the rising global oil price, which is now feeding into a 9 to 45 cents per litre under-recovery in international petroleum product prices.
The turn for oil prices – currently trading higher at around $88 a barrel – comes as the world’s largest crude oil consumer China ramps up production following a period of extended lockdown due to the Covid-19 pandemic.
Supply concerns, which favour higher oil prices and thus higher local fuel prices, are also coming on the back of sanctions against Russia and OPEC+ nations stemming daily supply.
According to Bloomberg analysis, oil prices are steadying at higher levels as markets assess the outlook for rising demand in the wake of China’s reopening as well as risks to Russian energy supplies with fresh sanctions against the nation looming.
“China’s shift away from Covid Zero has bolstered expectations that consumption in the largest importer will expand. Following the pivot, many more Chinese people travelled back to their hometowns for the lunar festival this year, and industrial activity is expected to pick up when workers return,” Bloomberg said.
Oil has shaken off a weak start to the new year to move higher as China’s outlook brightened. Additional support for crude has come from expectations that the Federal Reserve is close to ending its series of aggressive rate hikes, which has weakened the US currency. Traders are also weighing the impact of additional curbs on Russian energy flows as the war in Ukraine grinds on.
Nedbank warned that persistent oil supply worries are also pushing up prices after the International Energy Agency warned that the price cap on Russian crude could dent supply.
While China’s re-opening is putting upward price pressure on oil, it is also dampening the dollar, benefitting the rand.
TreasuryOne noted on Monday that the dollar had started the new trading week on the back foot as market optimism over a bounce in the Chinese economy grows.
“The greenback is also under pressure from the current impasse between the Democrats and the Republicans over the raising of the debt ceiling in the US and ahead of Thursday’s Q4 GDP number,” it said.
The rand is still providing a small buffer, balancing out the under-recovery by 13 to 15 cents per litre, but remains under pressure due to local issues like persistent load shedding.
The rand is trading unchanged at R17.11 on Monday after having recovered from an intraday worst level of R17.35 late on Friday.
South African fuel prices will be adjusted on Wednesday, 1 February 2023.
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