Global oil prices have come under strain, spelling some good news for local petrol prices in July.
The latest data from the Central Energy Fund (CEF) shows projected prices have not changed much since the mid-month review, with petrol still in line for a cut, while diesel is heading for a price jump.
Petrol is showing an over-recovery of between 11 and 19 cents per litre, while diesel is showing the opposite in a range of 14 to 19 cents per litre.
Analysts have noted that changes to the self-adjusting slate levy might limit the decrease in prices when they take effect from Wednesday, 5 July – but for now, a cut is still on the cards for petrol.
Local petrol prices are benefiting from a stronger rand, which has fallen below R19 to the dollar. On Monday, the unit settled around R18.65 to the dollar, the same levels at the close of the week, and reflected in the latest CEF data.
FNB’s economists have warned that multiple threats 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
The main factor working against lower prices is the oil price, which has been fairly flat and range-bound for most of the month, but was trending higher in the middle of the month to hit $78 a barrel.
However, by Monday, prices had started falling again to settle around $74 a barrel.
According to the Bureau for Economic Research, oil prices have suffered from a more downbeat sentiment in markets and concerns about the strength of global demand.
This was despite a surprise decline in US inventory levels and the anticipated start of Saudia Arabia’s production cut this coming weekend, which would typically spur prices higher.
Markets were also slightly shaken by the attempted insurrection in Russia this past weekend. This was a short-lived uprising led by Wagner Group head Yevgeny Prigozhin, which was settled before the week started.
Russia is a major OPEC+ producer, and investors held their breath while waiting to see what would happen next in the uprising. Oil prices were ultimately unmoved, however.
Economists at Nedbank noted that oil prices also dipped as chances of a global contraction were raised by prospects of even higher international interest rates.
While the US Fed has held on rates for now – giving hope that the South African Reserve Bank could do the same at its next meeting – other central banks in England, Norway, Switzerland and Turkey have all continued to hike rates.
The Fed has also admitted that rate hikes are likely to continue. These factors contribute to growing concerns around a global recession, dimming oil demand.
According to Bloomberg analysis, oil has dropped around 13% this year, partly due to Russia’s robust exports but also reflecting monetary tightening in the US and a lacklustre economic recovery in China.
“China’s economy continues to show signs of losing momentum as recent data showed slowed spending on everything from holiday travel to cars and homes,” it said.