Petrol and diesel prices are showing another mixed back in the first week of July, which points to a similar pathway ahead for price adjustments in August as was seen this week.
Petrol prices were cut by between 17 and 24 cents per litre on Wednesday (5 July), with diesel prices going up by between 12 and 18 cents per litre.
The latest daily snapshot from the Central Energy Fund (CEF) for the first week of the new month shows that prices in August might follow the same trend.
The group currently shows an over-recovery (potential price drop) in petrol of between 24 and 34 cents per litre for petrol, while diesel has an under-recovery (potential price increase) of between 17 and 22 cents per litre.
While the start of the month is too early to pencil in any definite changes, the daily snapshots serve as a basis on which to gauge potential movements in the price.
Specifically, the snapshot is on the basis of a R18.86 to the dollar exchange rate at a time when oil prices are around $76 a barrel.
This means that any further weakening of the rand or strengthening of the oil price is likely to adversely impact the daily recoveries and push more towards a price hike for petrol and a further climb for diesel. However, the inverse is also true, with a stronger rand and lower oil price leading to a bigger cut.
However, the outlook is not that rosy, with the rand weakening significantly on Friday (7 July) to once again trade above R19 to the dollar – pointing to a more negative fuel price outlook.
At the same time, global oil prices have also risen, with the current spot price moving above $77 a barrel.
The rand’s woes are rooted in global market sentiment, which is in a risk-off position following minutes from the US Federal Reserve, indicating that the States will likely continue to hike rates.
According to TreasuryOne, the minutes from the June meeting indicated that most members expected at least one more hike of 25bps this year, while the rest anticipate two or more hikes will be needed.
“A strong mention was also made about the current labour market, which remains tight, economic activity still being strong, and inflation is moving in the correct direction,” it said.
The dollar firmed against most currencies following the release of the minutes, but has since softened as markets await payroll and employment numbers from the US. However, the softer dollar has not aided emerging markets – including South Africa – much, as investors remain in risk-off mode.
“The rand touched R19.15 yesterday before closing nearly 2.0% weaker at R19.12. We are currently sitting at R19.11; however, there is room for a recovery to back below R19.00, given the softer Dollar and speed of yesterday’s move,” TreasuryOne noted.
Generally speaking, however, the rand’s weaker position makes the cost of importing petroleum products much higher, negatively impacting fuel prices.
On the oil front, the commodity headed for a second weekly gain after OPEC+ leaders Saudi Arabia and Russia tightened supplies and US crude stockpiles fell, Bloomberg reported.
“Saudi Arabia set large price increases for its crude to Europe and the Mediterranean after announcing an extension into August of its unilateral 1-million-barrel-a-day supply cut. In addition, Russia said it would reduce exports by half a million barrels, although output won’t be lowered,” it said.
Crude remains down about 10% this year, with tighter monetary policy, China’s lacklustre recovery, and resilient Russian exports pressuring futures – however the price decreases have already been factored into the daily balance and so local fuel prices are more susceptible to short-term changes.