Warning for petrol prices in South Africa

 ·23 Jun 2023

Despite petrol prices looking set to decline in July, experts at FNB have warned that prices will likely rise during the rest of 2023.

Recent data from the Central Energy Fund (CEF) points to petrol prices dropping between 8 and 16 cents per litre.

However, FNB senior economist Koketso Mano told BusinessTech that the self-adjusting slate levy might limit the decrease in prices – while wholesale diesel prices are expected to increase slightly.

According to the CEF, diesel is currently showing an under-recovery of roughly 13 to 18 cents per litre, signalling a probable price hike next month.

The rand’s strength, one of the main drivers of fuel prices, has recovered significantly in June from record highs seen in May – where it nearly hit R20/$.

Rand/ U.S. Dollar (January 2023 – June 2023)

Although the rand has strengthened significantly since the start of June, it has not been the main driver of the decrease in fuel prices seen in 2023.

However, Mano said that a stronger rand should support fuel prices over the coming months.

“The major reason why we had fuel price cuts at the start of June was lower international fuel product prices, while the rand pushed prices in the opposite direction,” Mano said.

“Therefore, a less depreciated rand would be supportive to lower fuel prices in the coming months, potentially countering an expected slight lift in the price of international fuel products.”

She warned that there are still multiple threats that could keep the rand undervalued in the near term, limiting the benefits for fuel prices.

“The concern is that there are several risk events in the near-term that could weigh on the rand, such as the BRICS summit and 2024 elections. In addition, although load-shedding has been less intensive in June, there are still risks that it could intensify beyond stage 6 as winter progresses,” Mano said.

As previously noted, a decrease in international prices has generally been responsible for the reduction in fuel prices, with the price of Brent crude oil dropping significantly over the last year.

Currently, the price for a barrel of Brent crude oil is below $75 per barrel, a major decrease from the nearly $110 per barrel recorded a year ago.

Brent Crude Oil Price (June 2022 – June 2023)

However, Mano said that the oil prices may still grow over the next year, potentially lifting fuel prices.

“Despite cumulative cooperative and voluntary output cuts by oil producer group and allies, OPEC+, expectations of weaker global activity this year have weighed on oil prices, especially with China’s recovery appearing to falter.”

“However, an intensification of the ongoing driving season in the Northern Hemisphere and/or better news out of China would support demand in the coming months, while some improvement in economic activity should support higher prices going into 2024.”

“Over the longer horizon, prices are generally supported by supply constraints given the shift towards cleaner energy that has resulted in lower investment in oil production capacity.”

In addition, although the U.S. Federal Reserve ending its rate hiking cycle would likely strengthen the rand against the dollar, it would also lead to higher international oil prices.

“Ultimately, we see an upward trend in fuel prices over the remainder of 2023, but we do not expect steep increases in prices, Mano said.

Consumer advice

With fuel prices set for a slight decrease next month ahead of a possible increase, FNB said that South Africa should use the extra funds wisely.

Ester Ochse, FNB Integrated Advice Product Head, said that South Africans should pay off their unsecured debt, as paying off credit now will save on interest in the long term.

Ochse added that they could instead put the additional funds into short-term savings accounts or long-term investment accounts where the funds will feel the benefits of the compound effect.

Read: Confidence collapses in South Africa

Show comments
Subscribe to our daily newsletter